The effect of interorganizational trust on make‐or‐cooperate decisions: Disentangling opportunism‐dependent and opportunism‐independent effects of trust

Abstract

This paper seeks to analyze the effects of interorganizational trust on the decision to vertically integrate a strategically important activity (‘make’) or sign a long‐term agreement with an external exchange partner to perform such an activity in collaboration (‘cooperate’). On the basis of the literature available on interorganizational trust in economics and sociology, we aim at theoretically and empirically disentangling opportunism‐based and opportunism‐independent effects of trust on governance choices. We develop a set of hypotheses on the moderating and direct roles of trust, which are tested using a sample of integration/collaboration decisions made by Austrian and German automotive suppliers. The results confirm both an opportunism‐mitigating effect of trust that lowers the transaction costs of a collaborative exchange and an opportunism‐independent effect that increases the transaction value of a collaborative exchange and also encompasses non‐economic motives for collaboration.

Interdependence and network-level trust in supply chain networks: A computational study

“…Trust has largely been examined in management research (e.g., Hoffmann, Neumann, & Speckbacher, 2010;Seppänen, Blomqvist, & Sundqvist, 2007;Thorgren, Wincent, & Eriksson, 2011) and dozens of definitions have been offered in previous studies (Dirks & Ferrin, 2001;Hosmer, 1995;Mayer, Davis, & Schoorman, 1995;Ring, 1996;Rousseau, Sitkin, Burt, & Camerer, 1998). Trust occurs in economic exchange when economic actors are willingly vulnerable to the behavior of other parties because of expected cooperation or benevolence from them (McCarter & Northcraft, 2007;Rousseau et al, 1998).…”

An Extended Transaction Cost Model of Decision Rights Allocation in Franchising: The Moderating Role of Trust

“…Finally, Hoffmann et al . () analyzed the role of trust in the firm's decisions to vertically integrate or cooperate. The results confirm both an opportunism‐mitigating effect of trust that lowers transaction costs and an opportunism‐independent effect that increases the transaction value of the cooperation.…”

“…A combination of transaction costs and relational variables, such as trust, has been extensively analyzed in the inter‐organizational alliances' context (e.g., Bradach and Eccles, ; Gulati, ; Zaheer and Venkatraman, ; Nooteboom et al ., ; Poppo and Zenger, ; Lui and Ngo, ; Mellewigt et al ., ; Ryu et al ., ; Hoffmann et al ., ). For instance, Bradach and Eccles () argued that trust affects economic exchange, serving as a powerful control mechanism, as it reduces the hazard of opportunism and thus the need for formal governance.…”

“…Most of the inter‐organizational governance literature analyzes trust as a main effect within the transaction cost framework. The role of trust as a moderator has received much less attention (for exceptions, see: Lui and Ngo, ; Mellewigt et al ., ; Ryu et al ., ; Hoffmann et al ., ). Lui and Ngo () analyzed architect–contractor partnerships by extending transaction cost model with trust, as an alternative control mechanism.…”

“…Firstly, we extend the existing literature (mainly based on agency and property rights theory) that deals with decision rights in franchising (Arrunada et al ., ; ; Windsperger, ; Azevedo, ; Lopez‐Fernandez and Lopez‐Bayon, ; Mumdziev and Windsperger, ) by developing a transaction cost explanation of the allocation of decision rights. Secondly, we add to the literature that deals with trust in franchising (Dickey et al ., ; Cochet et al ., ; Croonen, ; Davies et al ., ; Lopez‐Fernandez and Lopez‐Bayon, ) by analyzing the impact of trust on the allocation of decision rights. Thirdly, this study extends the transaction cost literature by testing the role of trust as a moderator between the transaction cost variables (uncertainty and transaction‐specific investments) and the franchisors' propensity to allocate decision rights to the franchisees.…”