Tepper School of Business,
Carnegie Mellon University
February 16, 2011
Speakman Hall 200, 1000am – 1130am
Seminar Title : Social Capital, Reputation and Contract Design in Buyer-Supplier Networks
Prior research on inter-firm contracting has identified the ideal governance mode to be either Formal‟ or „Relational‟ governance modes. However, both streams of literature rely on stringent assumptions about the cost of breaching contractual obligations and the mechanism of enforcement. We propose an embeddedness-based governance logic by examining an inter-organizational network of exchange partners. The buyer-seller network acts as a conduit for market actors to exchange information about exchange opportunities as well as the actual services traded, providing a mechanism for community enforcement. A firm‟s social capital in the network could assuage concerns about opportunism whereby a firm can maintain a reputation for performance. A firm‟s position in the network also acts as a signal of its ability and quality to agents beyond the dyad. We analyze a large dataset of public information technology (IT) outsourcing announcements using multi-way cluster-robust and network auto-regression techniques. We examine the impact of firms‟ position in the inter-organizational network on an important contract design element, the duration of contracts. We find that a network position whereby a firm is associated with central trading partners is likely to predict longer contract duration. We find that this relationship holds even after controlling for a number of alternate causal explanations. Implications for practitioners and research are discussed.
For a copy of the paper, click here.