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Enhancing Alliance Performance: The Effects of Contract-Based and Relational-Based Governance

Directory : Faculty : Intellectual Contributions

Intellectual Contribution by Yikuan Lee

Contribution Title

Enhancing Alliance Performance: The Effects of Contract-Based and Relational-Based Governance

Publication

Journal of Business Research, vol. 59(8), pp. 896-905.

Co-author

S. Tamer Cavusgil

Year

2006

Description

This study draws upon work in transaction cost economics and relational capital theory to examine the effect of governance structure on alliance performance. The authors distinguish the strategic performance of an alliance and the overall market performance and test the relationship between the two. The analysis of 184 business alliances suggests that relational-based governance as opposed to contractual-based governance is more effective and influential in strengthening the interfirm partnership, stabilizing the alliance, and facilitating knowledge transfer between alliance partners. The positive effects of relational-based governance are enhanced under high pressure of environmental turbulence. In addition, alliance performance directly affects overall market performance of the firm. Among the three dimensions of alliance performance, alliance strength is the strongest factor in predicting the overall market performance of the firm whereas knowledge transfer associates with new product and market development performance but not with sales and market growth performance. The empirical results suggest that firms ought to invest in relational-based governance, especially under the pressure of unforeseeable environmental changes.

Complete Citation

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