Buying Products from Whom You Know: Personal Connections and Information Asymmetry in Supply Chain Relationships

65 Pages Posted: 28 Jul 2017

See all articles by Ting Chen

Ting Chen

University of Massachusetts Boston - College of Management

Hagit Levy

City University of New York - Stan Ross Department of Accountancy

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Ron Shalev

New York University (NYU) - Leonard N. Stern School of Business

Date Written: July 27, 2017

Abstract

This study investigates whether the ability of executives to mitigate information asymmetry via interpersonal connections can affect the formation and the contractual terms of customer-supplier relations. We find that both educational and past work-based personal connections increase the likelihood of a potential supplier (hereinafter: vendor) becoming an actual supplier (hereinafter: supplier). The magnitude of the effect varies with the executive’s influence on supplier selection. Personal connections grow in importance when information asymmetry between the vendor and customer increases. Personal connections also affect contractual terms, including the contract duration, between the customer and the selected vendor. Finally, transacting with a personally connected supplier can mitigate supply chain interruptions and improve customer performance.

Keywords: Personal connections, Supply chain, Information asymmetry, Agency costs

JEL Classification: G32, G34, L1, M11

Suggested Citation

Chen, Ting and Levy, Hagit and Martin, Xiumin and Shalev, Ron, Buying Products from Whom You Know: Personal Connections and Information Asymmetry in Supply Chain Relationships (July 27, 2017). Available at SSRN: https://ssrn.com/abstract=3010000 or http://dx.doi.org/10.2139/ssrn.3010000

Ting Chen

University of Massachusetts Boston - College of Management ( email )

Boston, MA
United States

Hagit Levy

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

Xiumin Martin (Contact Author)

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Ron Shalev

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980418 (Phone)

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