The varying impact of buyer and supplier expected relationship-specific investments on relationship governance

Abstract

Purpose The purpose of this paper is to investigate the differential influence of buyer and supplier relationship-specific investments (RSI) on a buyer’s relationship governance decisions. Design/methodology/approach Based on transaction economics and social exchange theories (SET), the authors develop a framework to understand how and when buyer and supplier RSI influence governance decisions. This model was tested using a survey of 301 Information Technology (IT) procurement professionals across a multitude of industries. Findings This research shows that buyer and supplier RSI impact governance decisions differently. Supplier investments are positively associated with relationship formalization when goals between both parties are shared. Buyer investments are more strongly related to formalization in technologically uncertain environments. Originality/value This research adds to the literature by integrating arguments from both transaction cost and SET to hypothesize why buyer and supplier investments have a differential impact on relationship governance decisions. In line with these arguments, it ultimately demonstrates conditions that render such investments more/less influential.