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Relationship-Specificity, Bargaining Power Growth, and Firm Performance

Author

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  • Bragelien, Iver

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Impink, Joost

    (Fisher School of Accounting, Warrington College of Business Administration, University of Florida)

Abstract

We investigate the relevance of relationship-specificity in explaining firm performance and firm value. First, we use an incomplete contracts model to derive hypotheses on how relationship-specificity interacts with bargaining power and growth. And, second, we test these hypotheses on US data for the period 1998 to 2012. We use contract intensity introduced by Nunn (2007) to measure relationship-specificity at the industry level. Relationship-specific investments are considered to be low when a company’s inputs are sold on an exchange and high otherwise. Using size as a measure for bargaining power, we find support for our hypothesis that the benefits of bargaining power increase with relationship-specificity. We also find that growth has a stronger impact on firm value when relationship-specificity is high, indicating that the continuation value of the relationship matters.

Suggested Citation

  • Bragelien, Iver & Impink, Joost, 2014. "Relationship-Specificity, Bargaining Power Growth, and Firm Performance," Discussion Papers 2014/4, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2014_004
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    File URL: http://hdl.handle.net/11250/194962
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    More about this item

    Keywords

    Relationship-specificity; firm performance; bargaining power; growth;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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