Contract governance and buyer–supplier conflict: The moderating role of institutions

• Published date: 01 January 2016
• Author: Shibin Sheng,Xuan Bai,Julie Juan Li
• Date: 01 January 2016
• DOI: http://doi.org/10.1016/j.jom.2015.10.003

Contract governance and buyeresupplier conflict: The moderating

role of institutions

Xuan Bai

a

, Shibin Sheng

b

, Julie Juan Li

c

,

*

a

Department of Marketing, School of Business Administration, Southwestern University of Finance and Economics, Chengdu, PR China

b

Collat School of Business, University of Alabama at Birmingham, Birmingham, AL 35294, United States

c

Department of Marketing, College of Business, City University of Hong Kong, Kowloon, Hong Kong SAR

article info

Article history:

Received 3 December 2013

Received in revised form

21 October 2015

Accepted 26 October 2015

Available online 24 November 2015

Accepted by Daniel R Guide

Keywords:

Behavior-based contract

Output-based contract

Conflict

Legal enforceability

Unilateral government support

Institution theory

abstract

Drawing on contract governance literature and institutional theory, this study investigates the differ-

ential effects of output- and behavior-based contract governance on buyeresupplier conflict in supply

chains. The authors develop a contingent perspective to examine how institutional factors moderate the

impact of contract governance. The findings, from an empirical study of buyeresupplier dyads in China,

show that an output-based contract is negatively, whereas a behavior-basedcontract is positively, related

to buyeresupplier conflict. The effects of a contract are moderated by two primary institutional factors:

legal enforceability and unilateral government support. These findin gs haveimporta nt implications for

supply chain research, public policy, and ma nagerial practice.

©2015 Elsevier B.V. All rights reserved.

1. Introduction

Successful supply chain relationships are a critical source of

corporate competitive advantage and superior firm performance

(Agarwal et al., 2010). However, supply chain relationships suffer

from inescapable conflict, which occurs “when one party perceives

another as interfering with its goal attainment”(Samaha et al.,

2011: 100). The potential detrimental impact of conflict over-

shadows the cumulative effects of cooperative channel behaviors

(Palmatier et al., 2006). Therefore, reducing or resolving conflict is a

pivotal task in supply chain management (Lumineau and

Henderson, 2012; Rahim, 2002). Extant literature has extensively

examined the role of contractual and relational governance in

mitigating conflict or opportunism (Heide, 1994; Jap and Anderson,

2003; Poppo and Zenger, 2002), with the former focusing on the

legal contractual arrangements and economic incentives (Heide

and John, 1992; Williamson, 1985) and the latter focusing on the

role of social embeddedness in economic activities (Granovetter,

1985). By clarifying the roles and responsibilities of the buyer and

supplier, guiding interorganizational behaviors, and specifying

procedures and policies to adjust to environmental uncertainties,

contracts provide a primary safeguarding mechanism against

interorganizational conflict (Jap and Ganesan, 2000; Wuyts and

Geyskens, 2005; Zhou et al., 2014). Notwithstanding these ad-

vances, understanding of the role of contract governance in sup-

pressing or bolstering buyeresupplier conflict continues to be

underdeveloped.

First, though previous studies have examined the role of con-

tracts in mitigating exchange hazards in interorganizational re-

lationships, such as opportunism and conflict (Jap and Anderson,

2003; Williamson, 1985; Zhou and Xu, 2012), the theoretical pre-

dictions and empirical findings regarding the relationship between

contract governance and buyeresupplierconflict remain mixed. On

the one hand, the legal underpinning of contracts grants buyers the

option of sanctioning suppliers if they violate the terms specified in

the contract, so contracts work as an instrument of control to

facilitate buyeresupplier exchanges (Cannon et al., 2000). Detailed

contractual specifications also help exchange parties understand

the expectations of each side in the transaction and mitigate the

risk of misunderstanding (Malhotra and Lumineau, 2011). Thus,

contracts should facilitate buyeresupplier coordination and reduce

conflict. On the other hand, contracts may undermine channel

*Corresponding author.

E-mail addresses: baixuan@swufe.edu.cn (X. Bai), ssheng@uab.edu (S. Sheng),

julieli@cityu.edu.hk (J.J. Li).

Contents lists available at ScienceDirect

Journal of Operations Management

journal homepage: www.elsevier.com/locate/jom

http://dx.doi.org/10.1016/j.jom.2015.10.003

0272-6963/©2015 Elsevier B.V. All rights reserved.

Journal of Operations Management 41 (2016) 12e24