Investing in IT: a new method for improving the efficiency of contract governance in interfirm relationships

Abstract

PurposeThis study aims to enhance our understanding of how advanced IT improves the efficiency of contract governance in mitigating partners' opportunistic behaviors in interfirm cooperation and the moderating effects of boundary spanners' personal relationships and cooperative orientation.Design/methodology/approachContract governance is divided into two subdimensions: contract completeness and contract execution safeguards. Then, the hypotheses are examined using partial least squares–based structural equation modeling based on survey data collected from manufacturers in supply chain relationships.FindingsThe results first demonstrate that advanced IT can improve efficiency in both the design of complete contracts and the provision of contract execution safeguards. Second, the results also show that both the personal relationships between boundary spanners and the cooperative orientation of the firm have different moderating effects. Finally, contract execution safeguards are effective in mitigating partners' opportunistic behaviors, whereas contract completeness is not.Originality/valueThis study enriches the contract governance literature in two ways. First, it unveils how advanced IT improves the efficiency of contract governance and the effects of two contingent factors (i.e. personal relationships and cooperative orientation), thus extending the research on contract governance. Second, it reveals the different effects of contract completeness and contract execution safeguards on partners' opportunistic behaviors, thus deepening our understanding of the role of contracts in interfirm cooperation.