How Effective are Relational Incentive Contracts? Evidence from Entrepreneurial Firms in Russia

34 Pages Posted: 25 Mar 2016 Last revised: 31 Jul 2016

See all articles by Elena Kulchina

Elena Kulchina

Duke University; Duke Innovation & Entrepreneurship Initiative

Joanne E. Oxley

University of Toronto - Joseph L. Rotman School of Management

Date Written: February 15, 2016

Abstract

We present novel evidence on the use and impact of relational contracting between owners and managers of entrepreneurial firms. Our empirical observations support the intuition that relational contracts are particularly important for foreign entrepreneurs because of the obstacles that they face in observing managers’ efforts and enforcing formal contracts. Our results are also consistent with theoretical arguments that relational contracts are most effective when owners and managers place a high value on future dealings (expected profits and growth are high), and short-run gains from opportunistic action are limited (return volatility is low). Finally, our empirical setting allows us to isolate the impact of changes to agents’ outside options on the effectiveness of relational contracts. The study adds to our understanding of foreign entrepreneurship and the salience of contracting concerns in entrepreneurs’ governance decisions, and contributes to ongoing efforts at redressing the imbalance between empirical and theoretical work on relational contracting.

Keywords: relational contracts, entrepreneurs, managers, agents, agency problems

JEL Classification: M13, F23, L14, J41

Suggested Citation

Kulchina, Elena and Oxley, Joanne E., How Effective are Relational Incentive Contracts? Evidence from Entrepreneurial Firms in Russia (February 15, 2016). Duke I&E Research Paper No. 16-13. Available at SSRN: https://ssrn.com/abstract=2753455 or http://dx.doi.org/10.2139/ssrn.2753455

Elena Kulchina (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Duke Innovation & Entrepreneurship Initiative

215 Morris St., Suite 300
Durham, NC 27701
United States

Joanne E. Oxley

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-0305 (Phone)

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