Transaction Cost Theory Research Articles

The limits to open innovation and its impact on innovation performance

This study focuses on the sectoral and geographical differences in open knowledge collaboration for the innovation performance of UK firms. Drawing on transaction cost theory and appropriability of knowledge, we adopt a resource-based view to focus on limits to open innovation. We use a generalized multi-level mixed model to test our hypotheses, controlling for time, regional and firm unobserved characteristics. Our sample includes 19,510 observations and 17,859 firms, with a small panel element of 1651 firms mainly from the UK Innovation Survey and Business Registry. Our results demonstrate that limits to open innovation differ across knowledge-intense sectors and at different geographic dimensions, with creative sectors experiencing the greatest limits to knowledge collaboration in both national and international markets. We discuss why and how this occurs, and conclude with several theoretical and policy implications.

Contract governance and value co-creation in virtual community: the moderating effect of psychological ownership

ABSTRACT Previous research has identified the factors that affect the value co-creation in virtual community from the perspective of customer demands, however, less has been studied in the literature from the perspective of firms’ contract governance. Drawing on the literature on this topic, this paper focuses on the impact of contract governance on value co-creation in virtual community and introduces the belongingness, self-efficacy, and self-identity contained in psychological ownership of customers as moderators into the model. The findings show that contract governance has a positive effect on value co-creation in virtual community, psychological ownership has a positive moderating effect, which is mainly reflected in belongingness and self-identity of psychological ownership, but this effect is not obvious in self-efficacy of psychological ownership. This study will provide inspiration for brands to better manage virtual brand communities, enhance customers’ willingness to participate in value co-creation, and expand the research on transaction cost theory and value co-creation theory.

The role of salespeople in industrial servitization: How to manage diminishing profit returns from salespeople’s increasing industrial service shares

Business-to-business companies often differentiate themselves from competitors by complementing goods with services. While extant literature on servitization points to substantial benefits for companies and underscores the importance of the sales force for successful servitization, it has rarely empirically investigated the negative effects of and barriers to effective selling of servitized offerings at the salesperson level. Drawing on transaction cost theory, we propose that with rising service shares, the specificity of offers and transaction costs grow, partially offsetting the financial benefits. We derive four salesperson factors that moderate the effect of salespeople’s industrial service share on salespeople’s profit. These factors pertain to the extent to which salespeople individualize offers and effectively manage offers’ specificity (adaptiveness, customer valuation skills, experience). We test our conceptualization with data from 220 salespeople and company records. The results are robust to endogeneity and show that service share has a diminishing positive effect on salesperson profit. While salespersons’ offer individualization enforces this harmful effect, salesperson adaptiveness and customer valuation skills show beneficial moderating effects. This study provides valuable insights for researchers and managers into the role of the sales force in servitization and into salesperson factors conducive to realizing the full profit potential of servitized offerings.

Chinese Management Studies: A Matched-Samples Meta-Analysis and Focused Review of Indigenous Theories

The field of Chinese management studies has grown tremendously over the past four decades. Management theories originating from the United States have remained dominant in the analysis of Chinese firms, prompting the question of how powerfully these Western lenses explain management practices in non-Western contexts. Through a matched-samples meta-analysis, which integrates matching techniques into meta-analysis, we compare the mean effect sizes for five classic Western management theories—institutional theory, resource dependence theory, the resource-based view, agency theory, and transaction cost theory—on 452 matched samples drawn from 1,028 U.S. and Chinese studies. Surprisingly, as compared to their U.S. counterparts, Chinese firms (a) are less responsive to coercive and mimetic pressures yet more subject to normative pressures, (b) establish fewer business relations when faced with resource dependencies and transaction costs, (c) extract more profit from managing generic strategic resources, and (d) are more sensitive to pay incentives and private blockholders. To understand the specificities of Chinese management practices, we furthermore conduct a focused review of the emerging literature on China-endemic explanations: political institutional imprinting theory, state-driven sustainable development, and China-endemic corporate governance. We conclude that indigenous theories effectively complement Western perspectives when accounting for Chinese management practices.

Customer no-show reduction in web-based appointment service: investigations of non-attendance behaviors

ABSTRACT Web-based appointment services can improve the efficiency of the relative services, but always suffer from customers’ non-attendance behaviors. Previous research ignores the opportunistic feature of no-shows that is essential to understand customers’ non-attendance behaviors. Further, the effect of formal cancelation policies is yet understudied. To solve these problems, a research model based on transaction cost theory is proposed and tested in the context of the web-based outpatient registration service. Results of the research show that the occurrence of no-shows can be reduced when asset specificity factors increase and uncertainty factors decrease. The awareness of cancelation policies can lead to more cancelations but can also weaken the effects of asset specificity factors. Besides, no-shows can be decreased when cancelation policies are more restrictive.

How does the value co-creation of e-commerce platform and manufacturers affect channel performance? The moderating role of innovation capability and market turbulence

The purpose of this paper is to examine the relationship between inter-firm value co-creation activities and channel performance. Specifically, we ask which discrete types of value co-creation affect economic and relational channel performance? What firm-level and environmental factors, if any, moderate these effects? Drawing on transaction cost theory, and using data from 154 manufacturer and e-commerce platforms, we make notable contributions to the e-commerce literature. We show that two discrete types of value co-creation activities (joint planning and flexibility to make adjustments) positively affect both economic and relational channel performance. A third type, joint problem solving, only affects economic performance. We identify two moderators of these relationships: innovation capability positively moderates the relationship between value co-creation and channel economic performance; market turbulence positively moderates the relationship between value co-creation and channel relationship performance. The results can help enterprises understand how to optimise their implementation of value co-creation processes.

Project Finance Criteria and Governance of Public-Private Partnership Hydropower Project in Nepal

Project finance arrangement has obvious need for contract management during its life cycle. Contract management for private sector hydropower projects generally include Generation License, Project Development Agreement, Power Purchase Agreement, Financing Agreement, Construction Contract Agreement, and Operation Contract Agreement. Markets, hierarchies and hybrids are the forms of governance structure under the Transaction Cost Theory, while debt and equity often regarded as a basis for determining governance structure. Fundamental criteria for project finance arrangement include establishing a special purpose vehicle to undertake a project, using debt and equity in capital structure, debt capital obtained based on projected cash flow without collateral except if the project created assets given to the lender against the security of loan by the sponsors. This paper analysed project finance criteria as the determinants of governance structure in hydropower projects. In Nepal, private sector developed hydropower projects and supply generated energy to the only off-taker under Public-Private Partnership (PPP) and Project Finance (PF) arrangement. The chi-square test was utilised to assess the association of fundamental criteria of PF with the governance structure of hydropower projects. The results indicate strong association between PF criteria with the governance structure of sample hydropower projects in Nepal.

The Small Business Institute® and Transaction Cost Economics

Faculty in entrepreneurship and small business have many options available to gain experience, ideas, and beneficial information in order to succeed in research, the classroom, and program development. Due to the highly competitive nature of higher education and the constantly evolving field of entrepreneurship education and small business facilitation, the ability to find and implement the best ideas and filter out those that are not as useful can be a daunting task. Through the lens of transaction cost theory, this paper proposes the idea that utilizing an organization such as the Small Business Institute® can help eliminate the search and information costs, bargaining and decision costs, and policy and enforcement costs associated with finding and implementing the best ideas and innovations. A personal testimony of the beneficial experience of connection with the Small Business Institute concludes the paper.

Does Backward Integration Improve Food Safety of the Tea Industry in China in the Post-COVID-19 Era?

China is the largest tea producer in the world; however, tea quality and safety issues have caught broad attention due to pesticide overuse in the growing stage. In order to control the quality and safety of their raw inputs, tea-processing firms in China are expanding their own plantations. Does this backward integration (BI) improve the food safety performance of the tea firms in China? Based on the transaction cost theory, we empirically investigate the effect of tea firms’ BI on their food safety performances, using data from 246 tea firms collected via an online survey in 2021. Controlling the basic background situation and firms’ characteristics, the empirical regression results, when controlling for the self-selection bias, support the hypothesis that BI can improve the food safety performance of the tea industry when it reaches the effective integration level, specifically, 80% or higher. Other factors include that the private brand and asset share of the plantation would also help reduce the firms’ food safety problems. Therefore, the government may consider supporting firms’ BI in the development of tea plantations through one-time subsidies and/or land and labor coordination, so as to improve the food safety situation and industry efficiency.

Strategic Alliances and Performance of Firms in the Motor Vehicle Industry in Nairobi County

The current study sought to establish the effects of strategic alliances on performance of firms in the motor vehicle industry in Nairobi County, Kenya. The study specifically focused on assessing how technological alliances, marketing alliances, production alliances and logistics alliances affect performance of firms in motor vehicle industry in Nairobi County. The study was anchored on Resource Dependency Theory, Transaction Cost Theory, Knowledge Management Theory and Organizational Learning Theory. The study adopted a descriptive research design and targeted 18 firms in the automobile industry and operating in Nairobi County. The unit of observation comprised of 315 employees from the selected motor vehicle firms and occupying managerial positions. The study employed Slovenes Sampling formula in deriving a sample size of 158 respondents. Primary data was collected through a 5-point Likert scale questionnaire and analysed through both inferential and descriptive statistics. The statistics were generated by the help of SPSS and Ms Excel. The results of the analysis were presented using tables. The study established that producttion alliances and logistics alliances positively and significantly affect performances of motor vehicle industry (Beta=0.410, sig=0.000<0.05 and beta 0.301, sig=0.001<0.05). The study further established that technological alliances and marketing alliances positively but insignificantly affect performance of motor vehicle industry ((Beta=0.128, sig=0.089>0.05 and beta 0.109, sig=0.126>0.05). The results imply that enhancing increasing each of the variables with their one unit results to performance increase of the motor vehicle industry with the respective beta values. The study recommended that for there to be an enhanced performance amongst motor vehicle industry players in Nairobi County, there is a need for the firms to engage in alliances that contributed to operational effectiveness in areas of technology, marketing, production and logistics. Keywords: Technological Alliances, Marketing Alliances, Production Alliances, Logistics Alliances and Performance of Motor Vehicle Firms

Corruption, foreign aid, and international trade

AbstractCorruption has varying effects on international trade flows. Through the lenses of the institutional and transaction costs theories, we propose a novel institutional analysis of foreign aid as a formal institution that moderates the negative impact of corruption on international trade. We investigate this framework using a sample of the imports and exports of 30 Organization for Economic Co‐operation and Development (OECD) member countries and their 150 trading partners from 1995 to 2018. We analyze two main types of bilateral foreign aid within this framework: official development assistance and aid for trade. We present three main findings. First, the trading partners' corruption has a negative impact on OECD bilateral imports and exports. Second, both forms of foreign aid moderate the negative effect of the trading partners' corruption on OECD countries' exports. These findings confirm that OECD member countries are willing to export to very corrupt countries. Third, official development assistance does not moderate the relationship between corruption and imports, meaning that OECD countries do not import from corrupt locations. However, aid for trade still moderates the negative impact of corruption on OCED countries' imports. Overall, we confirm that foreign aid negatively moderates the adverse effect of corruption on exports but not on imports. Thus, foreign aid as a formal institution deserves more attention from OECD policymakers and managers of MNEs as a mechanism for reducing corruption and boosting international trade.

Why is manufacturing not more sustainable? The effects of different sustainability practices on sustainability outcomes and competitive advantage

Over the last decades, there has been growing worldwide concern for the notable contribution of manufacturing activities to environmental damages. In this context, there is an open debate regarding the incentives of companies to move from mere compliance strategies towards voluntary adoption of environmental responsibility strategies, simultaneously considering economic, environmental and social objectives. This paper aims to analyse the effect of different sets of sustainability practices on sustainability outcomes and the competitive advantage of manufacturing firms. The study distinguishes between internal, external monitoring and external collaborative sustainability practices and considers their effect on regulatory, environmental and manufacturing sustainability outcomes in order to identify their contribution to the competitive advantage of firms. Drawing on natural resource-based view theory, social exchange theory and transaction cost theory, and recent evidence in the field, the study tests several hypotheses using data from the fourth round of the High-Performance Management (HPM) project. Through structural equation modelling with partial least square methodology (PLS-SEM), this study shows the existence of differential effects of sustainability practices on sustainability outcomes and competitive advantage using a sample of 263 manufacturing plants located in 15 countries from three industry sectors. The findings of this study indicate that there are many reasons to be more sustainable. The adoption and effective implementation of both internal sustainability practices and external collaborative approaches boost sustainability outcomes. Manufacturing sustainability outcomes contribute the most to competitive advantage of manufacturing companies compared with regulatory or environmental ones. For practitioners, this study highlights the challenge of well-implemented internal sustainability practices that give support for effective collaborations, both determinants to achieve operational performance and competitive advantage. For the academia, this study shows that the interplay of different theories helps to understand the differential effects of sustainability in manufacturing.

Cooperation of Cross-border E-commerce: A reputation and trust perspective

ABSTRACT As a business mode, cross-border e-commerce responds to the trend of globalization. It is an effective means for numerous enterprises to open up new businesses, expand new markets, and overcome trade barriers. More and more enterprises are beginning to explore cross-border e-commerce. Notwithstanding, there is no theoretical guidance for the selection of cross-border e-commerce partners. This leads to the inefficiency of cross-border cooperation. How scientifically and rationally facilitate the inter-firm cooperation is a topic worthy intensive study. Drawing upon cognitive behavior theory, relational governance theory, and transactional cost theory, this paper examines the mechanism of corporate reputation of cross-border e-commerce on inter-firm cooperation under different levels of information sharing. Based on the analysis of the questionnaire data of cross-border e-commerce enterprises, it finds that the corporate reputation of cross-border e-commerce has a significant impact on inter-firm trust and both corporate reputation and inter-firm trust can promote inter-firm cooperation; inter-firm trust partially mediates the relationship between corporate reputation and inter-firm cooperation; with the increase of the levels of information sharing, the positive impact of inter-firm trust on inter-firm cooperation weakens. The conclusions provide theoretical basis for the selection of cross-border e-commerce partners.

Surety Bond in Infrastructure in Brazil: Transaction Costs and Agency Theory Perspectives

ABSTRACT Context: infrastructure projects assume the use of intensive capital and the participation of several actors, where the institutional environment influences their respective contractual arrangements. A financial instrument for project governance is surety bond (SB), whose purpose is to ensure compliance with the contracted object. However, research involving SB in the context of emerging countries such as Brazil is still incipient. Objective: this study aims to understand the use of SB in Brazil and proposes a conceptual model for analyzing transactions. It contributes to the literature by investigating the relationship between the actors and transactions involved in SB using the transaction costs theory and agency theory perspectives. Methods: this study adopts a qualitative methodology using primary data collected with 10 in-depth semi-structured interviews with market professionals with substantial experience in SB. In addition, it uses secondary data based on debate and a specific lecture on the topic involving the reality and the use of SB. Results: the findings indicate that the agency problem and the high transaction costs in Brazil prevent the development of this risk coverage market, giving rise to targeted public policies. Conclusion: the proposed conceptual model reflects the various specific transactions in the use of SB, the underlying phenomena and the validation of propositions related to market failures, and the institutional environment’s influence.

Research on Influencing Factors of Supply Chain Trust and Commitment Based on Transaction Cost and Social Exchange Theory

In the past, the literature often mentioned the relationship of trust and commitment, and believed that the lack of trust among supply chain members would lead to poor performance in transaction costs. Some studies believe that specific assets, behavioral uncertainty, and information sharing in the transaction cost theory have an impact on the trust level of supply chain partners. Other studies have pointed out the satisfaction of transaction partners and the reputation of partners in the market in social exchange theory. The degree and the cognition of both parties to the transaction will also affect the performance of the supply chain. This study attempts to integrate the above two theories and proposes an overall model of the factors affecting trust and commitment, and then uses the structural equation model (SEM) to carry out measurement models, structural models and the overall model is tested, and the research results indicate that the trust level is significantly related to the commitment level, while the manufacturer’s investment in specific assets, the uncertainty of both parties’ behavior, and the cognition level of both parties in the transaction in the theory of social exchange are all significantly related to the level of trust. Negative correlation; in transaction cost theory, partners’ investment in special assets, information sharing, and social exchange theory, satisfaction with trading partners, trading partners’ reputation and trust levels are significantly positively correlated, research results can provide supply chain management. As a reference, we will carry out partnership maintenance and management decision-making options.

Proof of Delivery Smart Contract for Performance Measurements

The growth of the enterprise blockchain research supporting supply chain management calls for investigations of their impact and mindfulness of their design, use cases, and pilots. With a blockchain design for the Proof of Delivery (PoD) process management, this paper contributes to learning about performance measurement and the transaction costs implications during the development and application of smart contracts. An experimental design science approach is applied to develop an open-source blockchain to explore ways to make the delivery processes more efficient, the proof of delivery more reliable, and the performance measurements more accurate. The theory of Transaction Costs is applied to evaluate the cost implications of the adoption of smart contracts in the management of the PoD. The findings show that smart contracts make the delivery processes more efficient and proof of delivery more reliable. Yet, the methods and metrics are too complex and qualitative, limiting the smart contract’s capability to measure performance. Our findings indicate potential transaction costs reduction by implementing a blockchain-based performance measurement. The complexities of the delivery process and proof of delivery call for pre-contractual steps to identify the processes and performance metrics to design blockchains. Smart contracts need further development and digital aids to handle qualitative inspections and proof of delivery generation during the delivery process. The blockchain requires the system’s capacity to record off-chain transactions, such as in case of disputes resolutions. The authors extended blockchain research beyond the theoretical level, designing an open-source blockchain for supply chain management within the use case, pilot design, and case study.

Ignoring the three-way interaction of digital orientation, Not-invented-here syndrome and employee's artificial intelligence awareness in digital innovation performance: A recipe for failure

• Digital orientation implies finding ways to create value with digital technologies. • NIHS refers to organizational rejection of external technologies. • EAIA alludes to the fact that employees perceive AI as a threat to their job / career. • The negative impact of NIHS is stronger when EAIA is high. • NIHS is a reaction of employees seeking to reduce the risk of being replaced by AI. This study employs Knowledge-based view (KBV) and Transaction Cost Theory (TCT) to analyze the moderating effect of the Not-Invented-Here Syndrome (NIHS) on the relationship between digital orientation and digital innovation performance when employee's artificial intelligence awareness (EAIA) changes. EAIA alludes to employee's concern about being replaced by artificial intelligence at work. Structural equations were used to test the research model. The key findings reveal that when EAIA is high, the negative impact of the NIHS is stronger. The finding is significant because it confirms that the NIHS, which is associated with organizational rejection of external technologies, is not a phenomenon exclusive to the pre-digital era, but its negative consequences such as biases in the digital technology assessment and neglect or suboptimal use of them, persist in the digital era. Nevertheless, the major contribution demonstrates that the NIHS is not an isolated fact or a product of individuals’ whims or irrationality; in the digital era, the NIHS is above all rational and opportunistic attitude rooted in EAIA. Furthermore, the NIHS becomes a planned response by employees aiming to minimize the risk of losing their jobs due to the impending replacement of digital technologies, particularly those related to automation processes.

Surety Bond in Infrastructure in Brazil: Transaction Costs and Agency Theory Perspectives

ABSTRACT Context: infrastructure projects assume the use of intensive capital and the participation of several actors, where the institutional environment influences their respective contractual arrangements. A financial instrument for project governance is surety bond (SB), whose purpose is to ensure compliance with the contracted object. However, research involving SB in the context of emerging countries such as Brazil is still incipient. Objective: this study aims to understand the use of SB in Brazil and proposes a conceptual model for analyzing transactions. It contributes to the literature by investigating the relationship between the actors and transactions involved in SB using the transaction costs theory and agency theory perspectives. Methods: this study adopts a qualitative methodology using primary data collected with 10 in-depth semi-structured interviews with market professionals with substantial experience in SB. In addition, it uses secondary data based on debate and a specific lecture on the topic involving the reality and the use of SB. Results: the findings indicate that the agency problem and the high transaction costs in Brazil prevent the development of this risk coverage market, giving rise to targeted public policies. Conclusion: the proposed conceptual model reflects the various specific transactions in the use of SB, the underlying phenomena and the validation of propositions related to market failures, and the institutional environment’s influence.

Does transaction atmosphere influence the decision-making behaviour of investors?

The profitability of impact investments ranges from a return on investment to market returns. To accomplish social goals, certain investors forgo part of the financial return. This approach opposes the concepts of conventional finance theory, which see the individual as a rational profit-maximizing decision-maker. A quantitative experimental study was conducted with students from the Upper Austria University of Applied Sciences, Steyr Campus, whereby the subjects were divided into two groups. A social Transaction Atmosphere (TA) was created in one group through the targeted use of stimuli. Subsequently, both groups had to make an investment decision in an identical scenario. The aim of the study and point of intersection between transaction cost theory and the social finance (SF)/impact investing (II) area is to analyse the observable "irrationality" in SF/II with reference to the transaction atmosphere as the primary decision-making element. The underlying scientific question investigates the impact of a socially shaped TA on the decision-making of investors. Experiment results demonstrated that the use of stimuli significantly raised the proportion of impact investments to overall investments. This finding suggests that a socially moulded TA is essential for investors' decision-making, whereby receptivity to the stimuli depends on individual investor characteristics, such as moral standard, financial knowledge, and previous experience with investment decisions. The financial aspect continues to play an important role in the decision- making process of investors.

Determinants influencing the intention to switch internet service providers of consumers: Application of transaction costs theory

Customer loyalty, retention, and repurchase intentions give favorable outcomes for providers, and service switching and switching intentions imply unfavorable outcomes (Bansal & Taylor, 1999). The aim of this study is to investigate the determinants influencing the intention to switch internet service providers of Vietnamese consumers. Data for this study were collected from a survey of 564 Vietnamese consumers in Hanoi who have bought internet service. Through quantitative research methods with some techniques, such as Cronbach’s alpha and exploratory factor analysis, the research shows that 9 factors influence the intention to switch internet service providers of Vietnamese consumers. The regression model among variables shows that influencing level clarity of the factors on the intention to switch internet service providers of Vietnamese consumers. Therefore, the empirical findings show that the intention to switch internet service providers of Vietnamese consumers has a mediating role in the relationship between service providers. The findings of this study suggest that managers need to focus on investing and researching to understand customers’ attitudes towards competitors’ products better, thereby they can proactively develop marketing programs to negatively influence the intention to switch. This article makes a new discovery about the intention to switch internet service providers for Vietnamese consumers