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Relational Ties or Customized Contracts? An Examination of Alternative Governance Choices in China

Kevin Zheng Zhou, Laura Poppo and Zhilin Yang
Journal of International Business Studies
Vol. 39, No. 3 (Apr. - May, 2008), pp. 526-534
Stable URL: http://www.jstor.org/stable/25483281
Page Count: 9
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Relational Ties or Customized Contracts? An Examination of Alternative Governance Choices in China
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Abstract

As business transactions become more complex in China - an increasingly market-driven economy - are managers more likely to employ relational ties or contracts? Consistent with the view that personal institutions govern transactions in China, our analysis of 361 buyer-supplier exchanges indicates that managers rely more on relational ties as asset specificity and uncertainty increase. We also find some support that impersonal institutions govern market transactions: as uncertainty increases, managers craft more customized contracts. Surprisingly, there is no association between contracts and asset specificity. These results hold for both local and foreign firms.

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