Relational Contract Theory Research Articles

The Relationality of Community Development Agreements towards a Human Rights Due Diligence Good Faith Requirement

Abstract Human rights due diligence (HRDD) is a buzzword in business and human rights (BHR) activities. However, multinational corporations (MNCs) often conduct it as a tick-box exercise without transparency. Using a relational contract theory, this article argues that when MNCs contract with local communities through community development agreements (CDAs) to perform HRDD, such contracts are internationalized relational contracts that attract a level of good faith. An established principle in international economic law, good faith serves as a standard for assessing conduct designed to discharge obligations in international contracts between states and MNCs (investor-state contracts). Similar to how investor-state arbitration tribunals use good faith jurisprudence in regulating the relationship between states and MNCs, this article proposes a BHR good faith jurisprudence to prescribe how HRDD obligations should be discharged. The article concludes that a good faith interpretational exercise in BHR would (1) reduce MNCs’ cosmetic compliance with HRDD principles; (2) increase transparency in the HRDD exercise; and (3) become a source of rights for local communities to enforce corporate accountability.

Promoting Employee Green Values Beyond the Office Walls Through Green HRM Utilizing Employee Environmental Knowledge as a Mediator

Organizations are adopting green initiatives in response to global environmental crises and climate shifts. While previous research has examined how green HRM affects employees' in role and extra-role working behaviors, less is known about how it influences employees' behavior outside of work due to their green values (GV) that develop because of implementing organizational green actions. The study addresses the issue, while also considering employees’ environmental knowledge (EK) as a mediating factor, utilizing social learning theory and psychological contract theory. Data were collected using the convenience sampling method, where the sample size was 320, from ten selected large-sized ceramic companies operating in Bangladesh. The structural equation modeling (SEM) was used to analyze the data. Results infer that green HRM effectively enhances EK among employees and redirects their GV beyond the workplace. Additionally, EK substantially and positively mediates between the green HRM and GV relationship. The conclusions correspond to the recommendations are indicated in the relational psychological contract theory and the social learning theory. The findings have imperative theoretical and managerial ramifications since they address the knowledge gap in the literature and outline knowledge enhancing green HRM practices that organizations may adopt to improve their green performance. The study also outlines actions for adopting green HRM activities in organizations, aligning the scope for improving employees’ EK and giving them the opportunities to practice green actions for sustainable social outcomes through their increased sense of GV.

Informal board hierarchy and corporate ESG performance

AbstractAgainst the backdrop of driving global economic sustainability, corporate Environmental, Social, and Governance (ESG) performance has gradually emerged as a crucial theoretical and practical concern. This study aims to enrich the theoretical understanding of the correlation between corporate governance and ESG. Notably, the theoretical contribution is based on the relational contract theory, indicating the significance of the informal structure and implicit characteristics of the board of directors for corporate ESG performance. Using Chinese listed firms as samples, this study empirically examines and reveals a positive correlation between the informal board hierarchy and corporate ESG performance. Moreover, based on theoretical deduction, this study identifies internal control, innovation efficiency, and financial performance as important mechanisms through which the informal board hierarchy promotes corporate ESG performance. Further analysis indicates that in firms characterized by higher board interaction, lower shareholding concentration, and the combination of the roles of chairman and CEO, the promoting effect of the informal hierarchy on corporate ESG becomes significantly more pronounced. Our findings contribute to the understanding of relational contract theory in the field of corporate sustainability, enriching the literature on corporate governance and ESG, and providing decision‐making references and practical insights for optimizing corporate development.

The importance of being relational: comparative reflections on relational contracts in Australia and the United Kingdom

The notion of the relational contract, previously limited to academic circles, is now being articulated by some courts. The consequences are threefold. Firstly, these judicial decisions are challenging the conception of agreements in the common law. Secondly, these decisions acknowledge the particularity of some long-term commercial relationships and shift the spotlight onto the relations of the parties. Thirdly, they are being used to integrate obligations to act in good faith. This article will show how these decisions implement the developing theory of relational contracts. The article will discuss recent developments in the United Kingdom and Australia and reflect on the parallel course the two jurisdictions are taking. By providing a bird’s-eye view of normative changes affecting some long-term transactions, the aim of the article is to reflect on how contract law is being reshaped by the recognition that, in some contracts, the relationship, not self-interest, is the vital thing, demonstrating a move away from traditional contract law theory.

Board Informal Hierarchy and Digital Transformation: Evidence From Chinese Manufacturing Listed Companies

Board informal hierarchy plays a crucial role in board governance and corporate strategic decision-making. The article empirically examines the impact of board informal hierarchy on corporate digital transformation based on relational contract theory, using a fixed-effects model with Shanghai and Shenzhen A-share listed manufacturing companies from 2012 to 2019 as research subjects. The findings of this study demonstrate a positive correlation between board informal hierarchy and digital transformation. Specifically, the presence of a chairman with the highest rank in the informal hierarchy strengthens this relationship, while the presence of a CEO with the highest rank weakens it. Mechanistic analysis shows that informal hierarchy accelerates digital transformation through three channels: improving board decision-making efficiency, mitigating management myopia, and facilitating information communication. This study extends existing research. On the one hand, this paper explores the drivers of digital transformation in manufacturing firms at the level of corporate governance and board characteristics. The findings provide empirical evidence to support the understanding of transformational change behaviors of manufacturing enterprises in the digital economy. On the other hand, it also opens up the “black box” of the internal operation of the board and provides valuable lessons for strengthening board governance. JEL Classification: D21; M12; Z13.

인코텀즈 상 정형거래조건의 활용이 SCM 운영적 유연성에 미치는 영향 연구

Purpose: This paper investigates the factors influencing the utilization of International Commercial Terms and the impact on supply chain management (SCM) flexibility from Incoterms utilization.
 Research design, data, and methodology: This paper utilizes a triple approach combining knowledge-based theory, relational contract theory, and power and dependence theory. For this study, questionnaires were distributed to examine the factors influencing the use of Incoterms and to analyze their causal relationships.
 Results: The findings reveal that differences in understanding Incoterms, mutual cooperativeness, and bargaining power all influence the effective utilization of Incoterms. Furthermore, a positive relationship between Incoterms utilization and SCM flexibility is observed.
 Conclusions: This paper enhances understanding of how using Incoterms affects supply chain management flexibility. It also offers valuable insights into the factors that influence the adoption and use of Incoterms, as well as strategies for enhancing SCM flexibility in international trade.

Relational contract theory, the relevance of actual performance in contractual interpretation and its application to employment contracts in the United Kingdom and Australia

This article articulates a theory of relational contract, as an alternative to traditional freedom of contract philosophy. The law has moved away from freedom of contract to some extent, and it can be criticised on the basis of its unrealistic assumptions and detachment from the typical reality of parties’ contracting. Relational contract theory is a possible suitable alternative theoretical framework. It may be useful in relation to contract interpretation. Specifically, it can be utilised to support a broader approach to contract interpretation, with the court focussing on the entirety of the parties’ relations, including the written terms and also subsequent performance. It enjoys some support in the United Kingdom and in other common law jurisdictions. It can support the view taken by two justices of the High Court of Australia in a recent contract interpretation decision involving employment contracts. The article favours the approach taken by these justices, rather than that of the majority, whose judgment reflects classic contract law sentiments at odds with the general direction of contract law in comparative jurisdictions.

Against the Spirit of the Age: The Rationale of Relational Contracts

Abstract In his long-awaited treatise on the relational theory of contracting, David Campbell provides a rigorous, systematic and consistently lucid account of mutual recognition as the basis of all volitional obligations. Fiercely negotiated economic transactions find their social expression in legally enforceable agreements that are to be followed scrupulously to the letter both by the parties and by the courts. This is because, in his view, mutual recognition, the co-operative economic enterprise, is memorialised in the legal instrument. Using the example of the emergent doctrine of good faith, this article argues that while such literalism proffers an admirably bright line for enforcement of agreements, it reduces the import and value of the relational theory of contract as an ethical and political accounting of market transactions. Literalism here is problematic not simply because of the inherent historicity and social diversity of language, but because in concepts such as good faith or reasonable interpretation, the purpose of the inscribed transaction has to be evaluated not only in terms of the plurality of the contract’s clauses, but also with a view to the overall shared intent of the exchange. For the relational theory of contract to have the impact that it merits, it needs to strengthen its account of how mutual recognition and the ethical and political dimensions of relationship best gain expression in the good-faith interpretation of the proximities manifest in agreement.

Fostering Knowledge Collaboration in Construction Projects: The Role of BIM Application

Knowledge collaboration is beneficial for project parties to assess valuable knowledge resources from others in order to enhance their competitive advantages. However, knowledge collaboration is hampered by the special project environment and temporary structure of construction projects. Based on relational contract theory, this study employs trust and relational norms as the two relational governance mechanisms for improving knowledge collaboration. Next, this study explores the effect of relational governance mechanisms on knowledge collaboration and the moderating role of the building information modelling (BIM) application level. We collected data from 166 responses in construction projects. Our results reveal that relational norms significantly impact knowledge collaboration, which is contrary to the effect of trust. Furthermore, the BIM application level has an interactive effect with relational norms, which improves knowledge collaboration. These findings reveal that the level of BIM application significantly affects the effectiveness of relational governance mechanisms. This study suggests that project managers should help project parties to develop BIM responsibilities in order to facilitate collaborative performance.

The importance of being relational: comparative reflections on relational contracts in Australia and the United Kingdom

The notion of the relational contract, previously limited to academic circles, is now being articulated by some courts. The consequences are threefold. Firstly, these judicial decisions are challenging the conception of agreements in the common law. Secondly, these decisions acknowledge the particularity of some long-term commercial relationships and shift the spotlight onto the relations of the parties. Thirdly, they are being used to integrate obligations to act in good faith. This article will show how these decisions implement the developing theory of relational contracts. The article will discuss recent developments in the United Kingdom and Australia and reflect on the parallel course the two jurisdictions are taking. By providing a bird’s-eye view of normative changes affecting some long-term transactions, the aim of the article is to reflect on how contract law is being reshaped by the recognition that, in some contracts, the relationship, not self-interest, is the vital thing, demonstrating a move away from traditional contract law theory.

Enforcing Sustainability Clauses in Global Supply Chains with a Focus on Proactive and Relational Contract Theory: Case of SDG 12

Globalisation allows corporate organisations to rise above the national and regional regulatory constraints through global value chains. This is especially due to the fact that national boundaries do not limit the flow of investment capital, labour, goods, or the environmental consequences of such activities. In parallel, the evolution of sustainable development has brought with it social, environmental, and economic activities for the benefit of future generations. The 2030 Agenda reflects the notion of sustainable development with 17 individual goals and 169 targets. While many welcomed such development, enforceability of sustainable development goals (SDGs) remains a challenge, primarily as voluntarism is central to the system of SDGs. In theory, consumers and end-user companies opt for sustainably produced goods to contribute towards sustainable development in their own countries and other countries in global value chains. In the absence of a national or international binding regulatory framework, contract emerged as the most effective solution for enforcing the SDGs in global value chains. This article explores the current challenges in the enforceability of sustainability clauses in global value chains through the lens of sustainable consumption and production patterns and SDG 12. It contributes to the ongoing academic debates and practical considerations through the lens of proactive law theory.

Can relational governance improve sustainability in public-private partnership infrastructure projects? An empirical study based on structural equation modeling

PurposeAccording to relational contract theory, relational governance has potential to improve public-private partnership (PPP) infrastructure project sustainability. The main purpose of this research is to investigate the association between relational governance and the sustainability of PPP infrastructure projects. Further, this study examines the mediating effect of managerial innovation and the moderating role of public involvement.Design/methodology/approachResearch data were collected from 158 valid questionnaires completed by Chinese PPP professionals. Structural equation modeling (SEM) was then employed to test five hypotheses.FindingsResults indicate a positive correlation between relational governance and PPP infrastructure project sustainability. This linkage is regulated by public involvement. In addition, managerial innovation plays a mediating role between relational governance and the sustainability of PPP infrastructure projects.Originality/valueThis study verifies the relationship between relational governance and PPP infrastructure project sustainability, as well as intermediary and regulatory factors, providing a new approach to achieving sustainability in PPP infrastructure projects.

Customer relationship and the operating performance following private placements

PurposeClose relationship with major customers, by curtailing opportunistic behaviors during private placements (PPs) and guaranteeing the production and sales of products after, is expected to facilitate the realization of PP’s strategic goals. However, major customers, on the contrary, may impair PP’s performance because of their strong bargaining power. Based on the transaction cost theory and relational contract theory, this paper aims to investigate the impact of major customers on firms’ strategic development in the context of private placements. The mechanisms of such impact are analyzed from the prospect of economies of scale, supervision and the rip-off effect by major customers. Further, the moderating role of the customer relationship investment (CRI) is considered.Design/methodology/approachUsing a sample of China’s non-financial A-share listed firms during 2010-2016, this paper empirically investigates the impact of customer relationships on firms’ operating performance following PPs. In the main regressions, the sales growth rate serves as the dependent variable to measure PP’s operating performance, while the customer concentration proxies for the closeness of customer relationship. This study captures the impact of customer relationships on PPs’ performance by looking at the coefficient of the interaction term of post PP dummy and customer concentration. In the additional tests, selling and management expenses along with entertainment and traveling expenditures are used to measure customer relationship investment.FindingsResults show that major customers help improve PPs’ strategic performance. The more concentrated the customer portfolio is, the higher operating performance will be after the PPs. Such a relationship is stronger when CRI is at a higher level. However, CRI also incurs costs, which impairs the effect of major customers on net profit. Further research finds that the effect of major customers is more pronounced in situations of extensional PPs, with actively interactive customers and in non-state-owned firms. In addition, state-owned customers with strong bargaining power have impaired the role of customers in promoting PP’s operating performance.Originality/valueThis paper validates the role of customers in firms’ strategic development. The study not only contributes to the research on the economic consequences of customers but also adds to the evolving literature of factors affecting the performance of PPs. The findings of the study have important practical implications for both customer relationship management and the supervision of PPs.

How relational contract theory influence management strategies and project outcomes: a systematic literature review

Despite growing interest in Relational Contracting (RC), few studies have comprehensively investigated the qualities required for a successful RC project. Macneil’s ten norms are principles of behaviour in contracts based on the application of relational contract theory and play an essential role in the formation and agreement of parties and their commitment to means and objectives. In contributing a missing dimension to the RC approach in construction, the purpose of this research is to conduct a systematic review of studies of relational contracting to answer the question: In what ways can the influence of RC theory be observed in the management strategies and outcomes of relational projects? Macneil's norms are used to provide a link between strategies and outcomes as a way of understanding RC and its influence on collaboration between the project actors in determining project outcomes. The results provide new insights with a view of consolidating extant literature and contributing through mapping practice back to theory. Findings show that the norms are evident in projects but with varied application and realisation in practice. This paper offers managerial implications and future research directions to investigate and capture the part played by the norms as mechanisms in construction projects.

Publishing Agreements Through a Sharper Lens: How Relational Contract Theory Informs Author–Publisher Negotiations

Classical contract theory—of will and morality, of promise or consent—translates awkwardly to contemporary publishing agreements where cultural products are not definitively valued, and publishing agreements’ industrial and aspirational ideals require an ongoing conversation, and relationship, between an author and publisher. Relational contract theory presents a framework in which parties to a contract can continue negotiations, particularly when industry developments create change or conflict. This paper applies relational contract theory to publishing contract negotiations to show how they operate incrementally, and illustrates via select qualitative interviews how contract terms are used in a post negotiation space to strengthen author–publisher relationships and support authors’ livelihoods.

Factors affecting transaction costs in megaprojects: a qualitative comparative analysis

PurposeThe purpose of this study is to examine the factors influencing the transaction costs (TCs) in megaprojects to provide a basis for controlling project costs.Design/methodology/approachThis study selects six factors influencing the TCs in megaprojects from the perspective of TC theory and relational contract theory (RCT) through literature review. On the basis of crisp-set qualitative comparative analysis (QCA), this study tests combined factors influencing the TCs and the interaction between them.FindingsResults show that in megaprojects, TCs are affected by combination factors. The combination of asset specificity, uncertainty, transaction frequency and trust and the combination of asset specificity, reputation and trust will control TCs in certain situations. In the configuration leading to high project TCs, the combination of environmental and behavioral uncertainties is a necessary condition.Originality/valueThis paper fills up the research gap in the field of megaproject TCs, and researchers can focus on this field in the future.

Correction to: Putting relational contract theory to the test: experimental evidence

Correction to: Putting relational contract theory to the test: experimental evidence

Putting relational contract theory to the test: experimental evidence

We investigate a number of canonical predictions that arise from relational contract theory. Employing an experimental design with endogenous choice of contract type, we find considerable experimental support for several well-established predictions, including the importance of self-enforcement and individual rationality constraints for contractual performance; a preference for informal agreements when third-party verification of performance is coarse; and a tendency toward strategic ambiguity (Bernheim and Whinston Am Econ Rev 88(4):902–932, 1998). However, two findings that appear to be inconsistent with theory are that (1) contractually specified performance levels do not appear to respond to the discount factor though realized performance does; and (2) subjects often apply inefficient punishments following a deviation. By providing evidence on the strengths and weaknesses of standard relational contract theory, our study shows where there is room for improvement. We conjecture that incorporating social preferences and semi-grim strategies (Breitmoser Am Econ Rev 105(9):2882–2910, 2015) can potentially address the observed weaknesses.

Relational Enforcement of Stock Exchange Rules

Stock exchanges, as regulating entities supervised by the Securities and Exchange Commission (SEC), have wielded their rulemaking power on various corporate governance issues, ranging from the independent board committee requirement adopted in 2003 to the board diversity requirement approved in 2021. Simultaneously, as for-profit corporate entities, major stock exchanges have been competing against each other to attract and retain more companies. This dual status of stock exchanges—as regulators and as profit-driven entities—brings into question the stock exchanges’ incentive to enforce their own rules against listed companies. What happens if a listed company violates stock exchange rules? As the first study that offers an analysis of original hand-collected data on 838 enforcement actions by stock exchanges in 2019, this Article finds that (1) stock exchanges’ detection of noncompliance is mostly on the failure to meet mechanical criteria, such as the $1.00 minimum stock price requirement; (2) listed companies tend to self-report violations of corporate governance requirements before the stock exchanges detect them; and (3) even after noncompliance is detected, stock exchanges tend to extend cure periods and rarely impose the only substantive sanction for stock exchange rule violations: delisting. Focusing on stock exchanges’ corporate governance requirements for listed companies, our analysis of S&P 1500 companies’ board composition data shows that despite this low likelihood of detection and enforcement, most companies diligently comply with the stock exchanges’ requirements. This Article argues that this curious coexistence of lax enforcement and diligent compliance can be explained as an extension of the relational contract theory to the relationship between a regulator and a regulated. Competition among stock exchanges makes a long-term, interactive relationship between stock exchanges and their listed companies valuable to both sides. The fact that the stock exchanges’ enforcement mechanism relies on a single, drastic measure of terminating the relationship (i.e., delisting) and that listed companies’ noncompliance hardly triggers delisting incentivize cooperative compliance between the regulator and the regulated. Such “relational enforcement” of stock exchange rules indicates that where there is an extended regulatory relationship that offers a substantial benefit to the regulated entity, diligent compliance can be expected even in the absence of rigorous, formal policing.

Contractual Renegotiations and International Investment Arbitration: A Relational Contract Theory Interpretation of Investment Treaties.

Contractual Renegotiations and International Investment Arbitration: A Relational Contract Theory Interpretation of Investment Treaties.