Relationship-Specificity, Bargaining Power, Growth, and Firm Performance

46 Pages Posted: 22 Feb 2014

See all articles by Iver Bragelien

Iver Bragelien

Norwegian School of Economics (NHH) - Department of Business and Management Science

Joost Impink

University of Florida

Date Written: February 20, 2014

Abstract

We investigate the relevance of relationship-specificity in explaining firm performance and firm value. First, we use an incomplete contracts model to derive hypotheses on how relationship-specificity interacts with bargaining power and growth. And, second, we test these hypotheses on US data for the period 1998 to 2012. We use contract intensity introduced by Nunn (2007) to measure relationship-specificity at the industry level. Relationship-specific investments are considered to be low when a company’s inputs are sold on an exchange and high otherwise. Using size as a measure for bargaining power, we find support for our hypothesis that the benefits of bargaining power increase with relationship-specificity. We also find that growth has a stronger impact on firm value when relationship-specificity is high, indicating that the continuation value of the relationship matters.

Keywords: Relationship-specificity, firm performance, bargaining power, growth

JEL Classification: D23, L14, L25

Suggested Citation

Bragelien, Iver and Impink, Joost, Relationship-Specificity, Bargaining Power, Growth, and Firm Performance (February 20, 2014). NHH Dept. of Business and Management Science Discussion Paper No. 2014/4, Available at SSRN: https://ssrn.com/abstract=2399405 or http://dx.doi.org/10.2139/ssrn.2399405

Iver Bragelien (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Joost Impink

University of Florida ( email )

PO Box 117166
336 GER
Gainesville, FL 32611
United States

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