Exchange hazards, relational reliability, and contracts in China: The contingent role of legal enforceability
AbstractBuilding on institutional and transaction cost economics, this article proposes that legal enforceability increases the use of contract over relational reliability (e.g., beliefs that the other party acts in a non-opportunistic manner) to safeguard market exchanges characterized by non-trivial hazards. The results of 399 buyer–supplier exchanges in China show that: (1) when managers perceive that the legal system can protect their firm's interests, they tend to use explicit contracts rather than relational reliability to safeguard transactions involving risks (i.e., asset specificity, environmental uncertainty, and behavioral uncertainty); and (2) when managers do not perceive the legal system as credible, they are less likely to use contracts, and instead rely on relational reliability to safeguard transactions associated with specialized assets and environmental uncertainty, but not those involving behavioral uncertainty. We further find that legal enforceability does not moderate the effect of relational reliability on contracts, but does weaken the effect of contracts on relational reliability. These results endorse the importance of prior experience (e.g., relational reliability) in supporting the use of explicit contracts, and alternatively suggest that, under conditions of greater legal enforceability, the contract signals less regarding one's intention to be trustworthy but more about the efficacy of sanctions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Palgrave Macmillan in its journal Journal of International Business Studies.
Volume (Year): 41 (2010)
Issue (Month): 5 (June)
Contact details of provider:
Web page: http://www.palgrave-journals.com/
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Hutzschenreuter, Thomas & Horstkotte, Julian, 2013. "Performance effects of international expansion processes: The moderating role of top management team experiences," International Business Review, Elsevier, vol. 22(1), pages 259-277.
- En Xie & Mike Peng & Wenhong Zhao, 2013. "Uncertainties, resources, and supplier selection in an emerging economy," Asia Pacific Journal of Management, Springer, vol. 30(4), pages 1219-1242, December.
- Wang, Longwei & Yeung, Jeff Hoi Yan & Zhang, Min, 2011. "The impact of trust and contract on innovation performance: The moderating role of environmental uncertainty," International Journal of Production Economics, Elsevier, vol. 134(1), pages 114-122, November.
- He, Xinming & Wei, Yingqi, 2011. "Linking market orientation to international market selection and international performance," International Business Review, Elsevier, vol. 20(5), pages 535-546, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Gale).
If references are entirely missing, you can add them using this form.