The Moderating Effect of Trust on Formal Control Mechanisms in International Alliances

Abstract

This study aims to shed light on the controversial debate regarding the substitutive or complementary nature of the relationship between inter‐organizational trust and formal control as governance mechanisms in affecting international alliance performance. We deepen understanding of the trust–formal control interaction by considering the multidimensional nature of formal control – both output and process control – and examining the role of trust as a moderating variable in the relationship between these two distinct kinds of control and alliance performance. We test the research hypotheses on a sample of 138 international alliances involving Italian firms and foreign partners. First, we find that only output control has a significant positive influence on alliance performance and that trust shows a fully significant positive effect on alliance success. Second, we find that trust moderates the effect of formal control on alliance performance by reducing the relevance of output control and increasing that of process control.

Keywords: international alliance, inter‐organizational trust, formal control mechanisms, alliance performance, moderating effect