Do Formal Contracts and Relational Governance Function as Substitutes or Complements?

Strategic Management Journal, Vol. 23, No. 8

Posted: 10 Apr 2003

See all articles by Laura Poppo

Laura Poppo

University of Kansas - School of Business

Todd Zenger

University of Utah

Abstract

While transaction cost economists have generally argued that hazardous exchange conditions warrant complex contracts or vertical integration, other scholars have argued that trust or relational forms of governance effectively support exchange. These scholars view relational governance as a substitute for complex, explicit contracts. Indeed, some have suggested that contracts directly undermine the evolution of trust in exchanges. We advance and empirically test the alternative argument that formal contracts and relational governance are complements. Rather than hindering or replacing relational governance, contracts may promote the formation of long-term, trusting exchange relations. Using data from a sample of exchanges in information services, we find empirical support for the proposed complementary relationship.

Note: This is a description of the article and not the actual abstract.

Keywords: Contracts, trust, complementarities, transaction cost economics

JEL Classification: L14, L22, L33, L86

Suggested Citation

Poppo, Laura and Zenger, Todd R., Do Formal Contracts and Relational Governance Function as Substitutes or Complements?. Strategic Management Journal, Vol. 23, No. 8, Available at SSRN: https://ssrn.com/abstract=319282

Laura Poppo

University of Kansas - School of Business ( email )

Lawrence, KS 66045
United States

Todd R. Zenger (Contact Author)

University of Utah ( email )

David Eccles School of Business
1655 East Campus Center Drive
Salt Lake City, UT 84112
United States
801 585-3981 (Phone)
801 581-7939 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,422
PlumX Metrics