Transaction-specific Investments Research Articles

The influence of ERP-vendor contract compliance and transaction-specific investment on vendee trust: A signaling theory perspective

The successful implementation of Enterprise Resource Planning (ERP) systems is significantly predicated on establishing customer trust, a challenge particularly accentuated in mainland China due to its distinct business and legal environment and a noted high failure rate of ERP projects. Whereas contracts and transaction-specific investments are common strategies to build this trust, their effectiveness remains contested in the existing literature. Specifically, the underlying mechanisms through which detailed contracts influence trust are still not clearly understood. To address these gaps, our study employs signaling theory to conceptualize a model that elucidates how contract completeness, vendor contract compliance, and transaction-specific investment act as trust-building signals in ERP vendor–vendee relationships within the Chinese context. Furthermore, we introduce ownership type as an additional variable, evaluating its influence in shaping customer trust. Our empirical analysis draws on data from 208 Chinese organizations engaged in ERP implementations, revealing nuanced findings. Notably, the vendor's ownership type, quantified by the degree of foreign ownership, negatively moderates both the results of contract completeness on contract compliance and the subsequent mediation effect on trust, thereby highlighting the critical influence of cultural factors. This study is among the pioneering empirical investigations into the synergistic roles of contract compliance and ownership type in mediating the relationship between contract completeness and trust. Our insights provide a robust foundation for understanding the complexities of contractual and relational governance in ERP vendor–vendee relationships, and we recommend targeted strategies for both vendors and customers to enhance trust in this critical business domain.

Alliance Dynamics for Entrepreneurial Firms

Small firms are thought to encounter various difficulties implementing strategic alliances. Due to these problems, they may be less able to reap the benefits of alliance adaptation, and the changes that occur in alliances over time often will not coincide with the small firm's interests. The evidence we present on contractual renegotiations in alliances suggests that small firms are no more or less likely to experience contractual changes in general. However, small firms tend to bear inefficiencies of two kinds in their collaborations. They are less likely to adapt alliances in the presence of governance misalignments. Furthermore, they are prone to make greater transaction-specific investments without commensurate contractual safeguards, which can lead to ex post hold-up in the form of contractual renegotiations.

Effect of social capital and transaction cost on multifaceted opportunism in manufacturer-supplier relationship

PurposeA successful relationship between manufacturer and supplier is vital for the pursuit of mutual benefits, which can be affected by one of the partners’ opportunistic behavior, causing disequilibrium in the existing relationship. The extant research has mainly focused on opportunism as a single phenomenon rather than the detectable strong form and unnoticeable weak form of opportunistic behavior in an exchange relationship that affects the relational outcomes in various ways. This study aims to contribute toward explaining the effect of economic and social forces on a strong and a weak form of opportunism and, in turn, its impact on relational outcomes in manufacturer-supplier relationships.Design/methodology/approachA sample of 361 manufacturers was drawn randomly using a sampling frame from the western part of India. The authors used covariance-based structural equation modeling to support the proposed model empirically. The authors examined the effect of social capital and transaction cost dimensions on different forms of a supplier’s opportunism.FindingsAll three dimensions of social capital have a different impact on both the forms of a supplier’s opportunism in the relationship. The authors found that social capital moderates the relationship between transaction-specific investments on a weak form of opportunism, while social capital is more valuable in curbing opportunism due to the effect of environmental uncertainty and behavioral uncertainty. The authors found that the supplier’s weak form of opportunism than the strong form has a more amplifying effect on governance costs.Originality/valueThis research contributes in three different ways. First, it inquires about the direct effect of transaction cost dimensions and social capital dimensions on a supplier’s multifaceted opportunism (strong form and weak form) in the manufacturer-supplier relationship. Second, it investigates the moderating effect of social capital on the relationship between transaction cost dimensions and forms of supplier opportunism. Third, the weak form of a supplier’s opportunism affects more significantly than the strong form of opportunism on governance costs.

Factors affecting the choice of governance structure along the vegetable value chain in Bangladesh

Analyzing governance structure is considered important when designing development interventions in the value chain. The objective of this paper was to explore the governance structure (GS) in cauliflower and tomato value chain, specifically the types of GS followed by the farmers and factors behind these choices. The two-stage random sampling procedure was used to collect data from 100 farmers whereas 60 traders were surveyed purposively for this study. Multinomial logit model was used to analyze the factors affecting farmer’s choice of GS. Trader’s perceptions regarding internal and external governance as well as good governance indicators were assessed by utilizing non-parametric test. Cauliflower and tomato farmers were involved in practicing spot market, relational, farmer’s association and outgrowing scheme-based GS. The results showed that the probability to choose relational, outgrowing scheme and farmer’s association-based GS were significantly affected by education of farmers, distance to the nearest market, access to extension services, access to price information, trust commitment, transaction specific investment, preferences of diversification, farm size, transactional uncertainty, and access to producer’s cooperative. Wilcoxon-Mann-Whitney-U test established trader’s dissimilation towards governance indicators. The study suggests that smallholder farmers need to be well organized and coordination mechanisms among all stakeholders should be increased.

Enterprise Systems and the Likelihood of Horizontal, Vertical, and Conglomerate Mergers and Acquisitions

This paper examines the relationship between enterprise systems (ES) and the likelihood of mergers and acquisitions (M&A). The key argument is that since ES can reduce agency costs associated with internal coordination and the transaction cost of coordinating with external partners, ES may be related to the likelihood of M&A. Using a sample of 3,289 firms headquartered in North America from 2010 to 2018 that made 8,373 M&A deals, the empirical analysis suggests that ES are positively related to horizontal acquisitions and negatively related to conglomerate acquisitions. However, as internal coordination costs increase, ES are becoming associated with more conglomerate M&A, especially when the goal is to introduce new products and enter new markets. Also, in contexts where partners require transaction specific investments, ES are associated with a relative decrease in the number of horizontal and vertical M&A. These findings suggest that ES create options for managers to engage in ownership as well as information-based coordination, depending on the internal and external coordination costs as well as the goals of the organization.

When to sign a contract: The timing of contractual commitments

This paper discusses theoretical propositions about the timing of contractual commitments. It is argued that technological uncertainty and demand uncertainty lead to late signing of contracts, whereas higher specificity of existing assets, higher complexity of search and negotiations, and higher product complexity lead to earlier contractual commitments. The need for new transaction specific investments characterized by time compression diseconomies also leads to earlier contractual commitments. Implications for contract signing, contract renewal, termination notice, and framework contracts are discussed.

Transaction-Specific Investment and Organizational Performance: A Meta-Analysis

Transaction-specific investment and organizational performance are two core concepts in studies of transactions between firms. The existing literature has explored the effect of transaction-specific investment on organizational performance from three different theoretical perspectives: transaction cost economics (TCE), the resource-based view (RBV), and social exchange theory (SET). However, considerable ambiguities and inconsistencies exist among the hypotheses and relevant empirical study results, which have brought confusion to academic research and practice. This study adopted a meta-analysis method to conduct a quantitative review of 58 existing empirical studies, and obtained a total sample size of 16,092. These results suggest more TSIs in buyer–seller relationships, which can improve both economic and social performance, especially regarding technological performance and relationship performance. Moreover, tangible TSIs are more efficient, although they are considered vulnerable to opportunistic behavior in previous research, and contextual factors are also considered as moderators. These findings enrich the existing inter-firm relationship literature and provide clear suggestions for companies’ TSI decisions.

Attributes of product advantage and choices for manufacturer–retailer formal governance: the case of new product launch

PurposeThis study examined how the technological (tech) advantage and market advantage of new products influence the level of formal channel governance and, in turn, affect the success of new products in the presence of relational governance.Design/methodology/approachThe hypotheses are tested using the partial least squares approach to analyse survey data collected from 392 retailers of customer goods in China.FindingsThe results indicate that tech advantage and market advantage lead to an increase in retailers' transaction-specific investments (TSIs) and contract explicitness, respectively; the positive effect of market advantage on a retailer's TSIs will gradually decrease and will even become negative beyond a certain point. The relational governance mechanism can substitute for the effects of contract explicitness on improving new product success.Originality/valueThis research provides a new perspective for understanding new product advantage and exerts an initial effort to empirically distinguish between tech advantage and market advantage. It enriches the innovation literature by examining the governance of new product launches through retailers and explores the effects of formal and informal governance on channel cooperation performance in the new product launch stage.

The choice of master international franchising – A modified transaction cost model

This study develops and tests a novel transaction cost model of master international franchising. Based on data from international franchise firms headquartered in six countries, we show that master international franchising is the franchisor’s preferred governance mode under the following conditions: large bilateral franchisor’s and franchisees’ transaction-specific investments, high institutional uncertainty and high behavioral uncertainty. Our model extends the literature by presenting a modified transaction cost model of master international franchising that investigates the bonding effect of bilateral transaction-specific investments and environmental uncertainty as determinants of the franchisor’s choice of international governance mode. In addition, by using primary data from international franchise companies, our study contributes to the transaction cost literature in international business and international franchising that is mainly based on secondary data.

Governance of international franchise networks: Combining value creation and value appropriation perspectives

This study develops a new perspective on the franchisor’s choice of international governance modes as a value creation and value appropriation mechanism. Value creation refers to knowledge creation from the joint use of the franchisor’s intangible system-specific knowhow and foreign partners’ intangible local market knowhow; value appropriation refers to efficient knowledge exploitation based on transaction cost savings under conditions of uncertainty and transaction-specific investments. Based on primary data from 162 international franchise systems headquartered in eight countries, the results highlight the importance of intangible knowledge-based resources (franchisor’s system-specific knowhow and franchise partners’ local market knowhow) and transaction cost factors (transaction-specific investments, environmental uncertainty, and cultural uncertainty) for the franchisor’s choice between equity modes, such as wholly-owned subsidiaries, and joint venture franchising, and non-equity modes, such as single-unit franchising, area development franchising, and master franchising.

The moderating role of cultural similarity in developing commitment in the industrial importer-supplier relationship

PurposeThis study aims to examine whether and how cultural (dis) similarity between business entities enhances or impairs the development of commitment in the trust building process in industrial importer-foreign supplier relationships.Design/methodology/approachDrawing on theoretical lenses of transaction cost economics, resource-based view and dynamic capability view, this study investigates how cultural (dis)similarity moderates the effects of opportunism, transaction-specific investment (TSI), the relative advantage of importing and communication on commitment, leading to building trust in business relationships. Using structural equation modeling and moderated regression analysis, the study tested several predicted effects using a sample of 154 industrial importers drawn from a developing country in Asia.FindingsA key finding of the study suggests that supplier opportunism comes into play and is negatively associated with industrial importer commitment as cultural dissimilarity increases. For culturally similar countries, opportunism does not affect commitment. Conversely, TSI has a positive effect on commitment for culturally similar countries; for dissimilar countries, TSI has no effect. The study also corroborates several additional hypotheses prevalent in the literature.Research limitations/implicationsCross-sectional data rather than longitudinal data, single country rather than multi-country perspectives and data from the importer’s side rather than from both importer and exporter may affect generalizability. Future research ought to address these issues to provide further insights.Originality/valueThe paper enriches the literature and extends the nomological network for international business theory by introducing the moderating effect of business cultural similarity in building commitment. Managerial perspectives are also gleaned from the findings.

Influence of supply chain technology responsiveness on supply chain and market performance

ABSTRACT Innovation adoption is linked to firm competitiveness, yet guidance about adopting a proactive stance across a portfolio of technologies is circumspect. We examine relationships between firm technology responsiveness and performance within the supply chain technology (SCT) domain. We derive a behavioral measure of SCT responsiveness by matching survey responses from 274 supply chain managers reflecting the organization’s technology adoption patterns across a portfolio of SCTs with measures of technology novelty. Findings suggest focal relationships are non-linear. In line with resource embeddedness, we find that positive effects of SCT responsiveness are stronger with high levels of key channel partner transaction-specific investments.

공급업체의 거래특유투자가 구매업체의 신뢰와 공급업체 성과에 미치는 영향: 구매업체의 비용절감 전략의 조절효과

[연구목적] B2B 맥락 하에서 거래특유투자와 공급업체 기업성과와의 관계에 대한 학계와 업계의 관심에도 불구하고, 이들 사이의 관계는 이론적, 실증적으로 일관된 결과를 도출하지 못하고 있었으며 오랜 기간 동안 논쟁의 대상이 되어왔다. 이에 본 연구에서는 두 변수들 사이의 관계를 명확히 하기 위해 거래특유투자와 신뢰(신용성과 호혜성), 그리고 공급업체 성과와의 관계 메커니즘을 실증적으로 검증하고자 하였다. 이와 더불어 본 연구에서는 신뢰와 공급업체 성과와의 관계에 있어 구매업체 비용절감 전략(장기적 비용기반 전략과 구매가격기반 전략)의 조절적 역할에 대해서도 살펴보았다.BR[연구방법] 본 연구에서는 한국 B2B 기업의 구매담당자들 189명을 대상으로 구조화된 설문지를 활용하여 자기기입식 설문조사 방식으로 데이터를 수집하였으며, 거래특유투자, 신뢰(신용성과 호혜성), 공급업체 성과와의 관계 및 비용절감 전략의 조절적 역할을 확인하기 위해 구조방정식모형을 활용하였다.BR[연구결과] 거래특유투자는 신뢰의 두 가지 차원(신용성과 호혜성)과 공급업체 성과에 모두 긍정적 영향을 미치는 것으로 나타났다. 또한, 신뢰와 공급업체의 기업성과와의 관계에서 장기적 비용기반 전략은 조절적 역할을 수행하는 것으로 확인되었다.BR[연구의 시사점] 본 연구를 통해 B2B 맥락 하에서 공급업체와 구매업체들 간의 효과적인 관계유지 전략 개발을 위한 이론적, 실무적 시사점을 제공하였다.

Real options in franchise contracting: an application of transaction cost and real options theory

Previous research has not explained the use of real option clause in franchise contracting. The real option clause has two economic functions: To reduce transaction costs by mitigating opportunism risk and to increase strategic rents by exploiting the profit potential from future upside opportunities under uncertainty. We argue that franchisors will more likely use a real option clause (ROC) in franchise contracts under high behavioral uncertainty, high franchisors’ transaction-specific investments relative to franchisees’ and long contract duration. In addition, by combining transaction cost theory and real option theory, our study provides a new explanation for the impact of environmental uncertainty on the use of ROC in franchise networks by showing that there exists a U-shaped relationship between environmental uncertainty and the franchisor’s use of ROC. Overall, the data from German and Swiss franchise systems provide support of the research model.

When Does Relational Governance Really Matter in Buyer-Supplier Relationships?

Relational governance has been widely recognized as an effective way for firms to mitigate exchange hazards and improve relationship performance. However, it is a key challenge for firms to determine the degree to which relational governance drives relationship performance. Therefore, this study analyzes whether relational governance has an optimum level with regard to relationship performance and whether the optimum level is different in relationships with different characteristics. Survey data from 228 firms in China are used to test the hypotheses. The findings imply that relational governance is not always effective and it has an optimum level with regard to relationship performance, which varies according to the relationship’s characteristics. The optimum level of relational governance, with regard to relationship performance, is higher for relationships with high trust and transaction specific investments. Our finding reconciles previous debates, which in turn, deepens our understanding of relational governance. In addition, the study is an initial explorative attempt to reveal the moderating effects of relationship characteristics from different lens that has both dedication and constraint aspects. The findings answer the question of when relational governance is really good for performance, and contribute to the dedication-constraint framework seen in the marketing literature as well. Given the bright and dark side, managers should be prudent in the use of relational governance and develop relational governance according to the characteristics of their buyer-supplier relationships.

Can a supplier benefit from investing in transaction-specific investments? A multilevel model of the value co-creation ecosystem perspective

Purpose This paper aims to build and empirically test a multilevel framework integrating transaction cost economics and a resource-based view into a value co-creation ecosystem perspective to explain the chain- and firm-level effects of transaction-specific investments (TSIs) on supplier performance. Design/methodology/approach This paper investigates cross-level network effects using survey data from the List of Taiwanese Central Satellite Production Systems. A total of 34 buyers (hub firms) and 106 suppliers (satellite firms) from 34 supply chains responded to the survey. Findings Findings confirm that individual firms’ TSIs can foster co-specificity at the supply chain level, thereby improving supply chain integration (SCI). SCI can have a positive cross-level moderating effect on the TSI–performance relationship. Research limitations/implications These two key concepts, value co-creation and co-specificity, extend the theoretical application of transaction cost theory and the resource-based view to cross-level study by contributing to the research on the TSI–performance relationship. Practical implications This study’s framework is a counter to the buyer–supplier–supplier relationships in which each actor who may have different goals can create value jointly and share benefits from their TSIs. Social implications Owing to high co-specificity, being embedded in a well-integrated supply chain can be a threat when the environment is turbulent; for losing strategic flexibility, co-specificity and embeddedness may result in a collective adaptation concern. High degrees of SCI may slow the reaction to environmental turbulence for both buyers and suppliers. Originality/value Individual firms’ TSIs can foster co-specificity at the supply chain level, subsequently enhancing SCI. An integrated supply chain can be a collective asset that facilitates value co-creation. Individual firms can benefit from the sharing of collective value. SCI can also increase switching costs, thus reducing the likelihood of individual firm engaging in opportunistic behavior and cost safeguarding.

Contract complexity and trust in construction project subcontracting

PurposeThe purpose of this paper is to unpack the “black box” of the relationship between contract and inter-organizational trust, both theoretically and empirically. Two mediators, namely perceived safeguard and restriction, are identified to build up two seemingly contrary possible paths between contract and trust from current literature. Both paths are tested in the context of Chinese construction industry due to our access to sample.Design/methodology/approachA survey of 295 contractor-subcontractor relationships from Chinese construction industry was conducted. A three-step multiple regression model was employed to test the mediating effect of perceived safeguard and restriction. Then, a hierarchical regression model was used to test the possible moderating effect of bilateral transaction-specific investment.FindingsThe empirical results support the mediating effect of perceived safeguard between contract and trust in the construction subcontracting industry. Bilateral transaction-specific investments enhance the positive effect of contract on safeguard perception.Originality/valueTheoretically, this study contributes to governance literature by opening up the “black box” of the relationship between contract and trust. It provides a better understanding of how and when contract complexity impacts trust, instead of simply focusing on whether contract and trust act as complements or substitutes. Practically, this study provides guidelines for construction firms to decide the degree of contract complexity under various degrees of bilateral transaction-specific investments to enhance the other party’s trust, so as to improve performance outcomes.

The influence of unilateral supplier transaction-specific investments on international buyer opportunism: empirical findings from local suppliers in China

PurposeThis study examines how unilateral supplier transaction-specific investments (TSIs), directly and indirectly, influence international buyer opportunism and the extent to which detailed contracts enable suppliers to safeguard against international buyer opportunism. The study also examines whether relationship length affects the efficacy of detailed contracts in cross-border outsourcing relationships.Design/methodology/approachThe hypotheses are tested by using data collected from multiple informants working for 229 manufacturing suppliers in China. Multiple regression with a three-way interaction is used to test the hypotheses.FindingsUnilateral supplier TSIs encourage international buyer opportunism through increased supplier dependence. Contract specificity negatively moderates the effect of supplier dependence on international buyer opportunism. This moderating effect is stronger in long-term cross-border buyer–supplier relationships than in short-term ones.Originality/valueThe current study extends the cross-border outsourcing literature by examining how emerging-market suppliers in a weak power position can proactively safeguard against international buyer opportunism by using detailed contracts. Our findings show that supplier dependence mediates the relationship between unilateral supplier TSIs and international buyer opportunism; detailed contracts, however, can help dependent suppliers safeguard against international buyer opportunism. In particular, the findings highlight the importance of long-term buyer–supplier relationships that enhance the efficacy of detailed contracts.

Packaging deals in the entertainment industry: a bargaining approach

ABSTRACT Creation of a television or movie project requires the bundling of inputs – writers, actors, directors – into a coherent package that can be produced and distributed. Traditionally this bundling was done by studios, which then negotiated compensation deals with input suppliers via their agents. However, large talent agencies have increasingly engaged in the practice of “packaging,” which involves creating vehicles for their clients and selling the bundled projects to studios. The union for screenwriters has challenged this activity as constituting an unfair business practice, arguing that it creates a conflict of interest on the part of agencies. This paper evaluates this claim in a bargaining framework with transaction-specific investments and a possible holdup problem.

Relationship satisfaction: An overlooked marketing channel safeguard

Transaction specific investments (TSIs) are investments that a marketing channel firm makes to create value for a particular channel relationship. TSIs transform the relationship by creating barriers to exit or lock-in situations because the investing party cannot leave the relationship without incurring substantial costs. This situation may compel the investing party to engage in opportunism to recoup the value of the specific investments, particularly when they are not satisfied with the relationship. We argue, therefore, that relationship satisfaction may serve as an important safeguard when TSIs have been made. Further, we argue that monitoring ease will interact with the moderating effect of relationship satisfaction on the relationship between TSIs and opportunism. Data were collected from 296 hotel general managers and 37 hotel headquarters' field representatives in the U.S. and Canada to test these possibilities. We found that relationship satisfaction indeed serves as an important safeguard, particularly when the partner has difficulty in monitoring the firm.