The effect of product complexity and communication quality on IOCM and OBA in buyer– supplier relationships

Purpose - This paper aims to investigate the effect of product complexity and communication quality on inter-organizational cost management (IOCM) and open book accounting (OBA) practices in buyer–supplier relationships in Malaysian manufacturing firms. Design/methodology/approach - A questionnaire survey was administrated to CFOs or accounting managers of Malaysian suppliers. Exploratory factor analysis and Structural Equation Modeling procedures were applied to test convergent and discriminant validity of the measurement model and examine the relationships among the latent constructs in the structural model. Findings - The results suggest that IOCM and OBA scales show acceptable reliability and validity. The findings also report that both product complexity and communication quality have a positive effect on IOCM and OBA in buyer–supplier relationships. However, the results suggest that IOCM does not influence OBA practice. Research limitations/implications - Although IOCM and OBA constructs exhibited satisfactory reliability and validity, future research is required to refine and further validate these constructs. The data were only collected from the supplier’s perspective. Thus, future research is invited to benefit from matched data from both suppliers and buyers to generate additional insights on IOCM and OBA. Practical implications - This study may assist suppliers and buyers in relationships by suggesting that complex products require the adoption of IOCM and OBA practices to reduce information asymmetries and manage costs. Furthermore, emphasizing quality of communication may enhance the implementation of these practices. Originality/value - Theoretically, this study contributes to the academic stream of management accounting and cost management as it enhances an understanding of contributions introduced in prior literature on IOCM and OBA. It uses a complementary approach of transaction cost theory (TCT) and social exchange theory (SET) to explain the research model. Methodologically, the study validated scales for measuring IOCM and OBA in a new environment.