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Choice and performance of governance mechanisms: Matching contractual and relational governance to sources of asset specificity

Listed author(s):
  • Glenn Hoetker

    (University of Illinois at Urbana-Champaign, College of Business)

  • Thomas Mellewigt

    (University of Paderborn, Department of Management)

We argue that the optimal configuration of contractual and relational governance mechanisms in an alliance is contingent not only on the amount of asset specificity, but on the nature of the asset involved in the alliance. Physical assets are more suited to contractual controls, while knowledge assets will be best suited to the use of relational governance mechanisms. Using data on alliances in the German telecommunications industry, we find that the choice of governance mechanisms is as hypothesized. In addition, relational and contractual governance mechanisms are perceived to perform better in the presence of knowledge and physical assets, respectively. Relational governance mechanisms improve overall alliance performance to the degree that knowledge assets are involved, but impair performance when property assets are involved. Our findings contribute to the literature on alliances, as well as the underlying literatures of transaction cost economics, the literature on relational governance, and recent work studying their interaction.

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Paper provided by EconWPA in its series Industrial Organization with number 0411008.

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Length: 41 pages
Date of creation: 17 Nov 2004
Handle: RePEc:wpa:wuwpio:0411008
Note: Type of Document - pdf; pages: 41
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