Getting to Know You: Trust Formation in New Interfirm Relationships and the Consequences for Investments in Management Control and the Collaboration

41 Pages Posted: 25 Nov 2015

See all articles by Shannon W. Anderson

Shannon W. Anderson

University of California, Davis - Graduate School of Management

Fern Chang

Tat Petroleum Pte Ltd

Mandy M. Cheng

UNSW Australia Business School, School of Accounting

Yee Shih Phua

University of New South Wales (UNSW)

Date Written: October 28, 2015

Abstract

Trust is often posited to substitute for management control in interfirm transactions. However, this raises questions of how trust arises in new relationships, and whether trust that is not based on prior experience transacting together is sufficient to persuade managers to forego investments in management controls. We use experimental methods to test whether two features of the early stage of an interfirm relationship influence a buyer’s initial trust in a supplier and have consequences for subsequent investments in management controls and in the collaboration. These two features are the autonomy of the buyer’s manager to choose a supplier (i.e., delegation of decision-making authority) and the supplier’s willingness to share information with the buyer. We find that the buyer manager’s initial trust in the supplier is associated positively with both the autonomy to choose the supplier and the supplier’s willingness to share information. Information content and supplier characteristics are held constant, so these results are novel and distinct from prior studies of the antecedents of trust. We find that higher initial trust is associated with reduced expenditures for management controls and increased investments in the collaboration. Thus, we conclude that delegation of decision-making authority and supplier information-sharing behavior in the early stages of a relationship influence the formation of initial trust, which has real consequences for investments in management control and in the collaboration.

Keywords: supplier selection, decentralization, autonomy, experiment

JEL Classification: M41

Suggested Citation

Anderson, Shannon W. and Chang, Fern and Cheng, Mandy M. and Phua, Yee Shih, Getting to Know You: Trust Formation in New Interfirm Relationships and the Consequences for Investments in Management Control and the Collaboration (October 28, 2015). Available at SSRN: https://ssrn.com/abstract=2694788 or http://dx.doi.org/10.2139/ssrn.2694788

Shannon W. Anderson

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

Fern Chang

Tat Petroleum Pte Ltd ( email )

9 Jln Pesawat
619367
Singapore

Mandy M. Cheng

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
(612) 9385.6343 (Phone)

Yee Shih Phua (Contact Author)

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
109
rank
245,714
Abstract Views
960
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information