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Journal Article

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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