How do managerial ties affect contractual governance in interfirm cooperation?

Abstract

Purpose Based on social capital theory and the institutional theory, this paper aims to explain how a firm’s business ties and political ties affect contractual governance in an interfirm cooperation, and under which institutional conditions they can play a better role. Design/methodology/approach This study tests conceptual model using questionnaire survey data collected from 227 firms in China. Hierarchical regression analysis is used to test the hypotheses. Findings This study finds that business ties have significant effect on contract completeness, while political ties have significant effect on contract enforcement. Moreover, these effects are contingent on some institutional factors. Market information transparency strengthens the effect of business ties on contract completeness and weakens the effect of political ties on contract completeness. Legal system completeness weakens the effect of political ties on contract enforcement. Practical implications This study suggests that managers could actively and selectively use their managerial ties to enhance contractual governance in an interfirm cooperation. Originality/value This study adds to the current understanding of how an interfirm cooperation is shaped by the firm’s social capital derived from external network relationships and extends the research on what social antecedents affect contractual governance. Moreover, this study sheds new light on when managerial ties can play a more beneficial role in emerging economies.