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This chapter investigates the relationship between related party transactions (RPTs), corporate governance, and firm performance. Specifically, this chapters examines the moderating effect of corporate governance on the RPTs–performance relationship. On the basis of 448 firm-year sample for 2005–2007, we find evidence that related transactions are detrimental to shareholders and thus reducing firm performance. However, the negative effect is mitigated with the presence of good governance, namely level of board independence and executive remuneration. Furthermore, we find auditor size as an external governance mechanism could also reduce the negative impact of RPTs.

Practitioners often are confused by theories that offer ambiguous prescriptions for designing the institutional forms or governance structures in which business activities are conducted. Unclear prescriptions for organizing tasks within the main governance alternatives leave key design decisions unguided: which tasks to perform in‐house (hierarchy), which to contract to outside agencies (market), and which to perform jointly by economic units within and outside the firm (hybrid)? A popular current theory ‐ transaction cost analysis ‐ suggests that governance structures should be aligned to tasks in a “mainly transaction cost economizing way.” Argues that the importance of transaction costs is overstated, and that observed patterns of firms’ governance structures suggest that firms also account for other theoretical issues ‐ production costs and strategic considerations ‐ in determining efficient boundaries. Begins by illustrating that transaction costs are not always primary. Then discusses the factors that impact production costs and transaction costs, and reviews certain strategic considerations that impact the choice of governance structure for a task. Offers practitioners guidance in choosing governance structures through a contingency analysis that examines the interaction of production costs, transaction costs, and strategic considerations. Illustrates normative implications for designing governance structures through corporate examples that are driven by both cost and strategy considerations.

The purpose of this paper is to describe the forms of coordinating transactions used by a large beef slaughterhouse and processing companies and their suppliers of beef cattle, and to identify the reasons for the adoption of plural forms of governance for their transactions with cattle suppliers.

A case study format was selected for this investigation. The focal company selected offers a large number of products derived from beef for different commercialisation channels in the domestic and foreign market. A non-probability sample of 30 suppliers (cattle farmers) of the focal company provided data on finished steers sold in 2010, according to the three types of governance used in the transactions (spot market, forward contracts and long-term contracts).

The simultaneous use of more than one type of governance structure to coordinate similar transactions has been termed plural forms of governance in the literature. In Brazil, new forms of governance, such as formal and informal contracts, have been adopted for transactions between beef processing companies and cattle farmers, in addition to the use of spot market and vertical integration. It has been shown that the adoption of plural forms reduces the risk of complex transactions; and is a strategy to deal with unpredictable institutional environments and high heterogeneity of both suppliers and distribution channels.

The research provides empirical evidence of plural forms of governance, as well as the reasons for the adoption of this strategy by firms, which contributes to the ongoing theoretical discussion on this subject.

The paper has implications for company supply chain management.

This paper presents theoretical review on plural forms of governance, new empirical evidence and determinant factors for their adoption.

This paper aims to develop a theoretical framework based on transaction cost economics that identifies key factors shaping public agencies’ governance of supplier relationships and related performance implications.

The paper presents an extended transaction cost framework for research on public procurement (PP) with a corresponding set of propositions. Transaction cost theory and specific features of and challenges to the PP function identified in extant literature constitute the main elements of the framework.

This conceptual paper makes three sets of proposals. First, public agencies tend to rely on market governance of supplier relationships and when PP deploys non-market governance, such governance tends to be of a unilateral (vs bilateral) kind. Second, increases in purchasing competence and autonomy of PP and particularly if implemented in tandem, will reduce PP’s overreliance on market governance and increase PP’s use of non-market governance. Third, PP should perform better for less complex transactions – and when contracting complexity relates to safeguarding of specific assets rather than when complexity relates to environmental and behavioral uncertainty. Increases in competence and autonomy should increase PP’s performance, particularly for complex transactions.

Public agencies may be in a better position to align governance solutions with transaction complexities by developing their procurement competence, decentralizing procurement decisions and increasing the flexibility of national and international procurement regulations. Private companies selling to public agencies need to be aware of and able to adapt to PP practices such as extensive use of market governance and unilateral governance as the primary form of non-market governance.

The paper discusses how public agencies can improve procurement performance through better alignment of governance of supplier relationships with transaction attributes and thereby increase the quality of public services.

The paper relies on a well-established theoretical perspective, enabling identification (and, potentially, correction) of governance misalignment in the public sector.

This paper aims to explore management control structure change related to the development of a shared service centre (SSC).

The paper explores a transaction costs economics perspective (TCE‐perspective) on management control structure change related to the development of an SSC. Particularly, it explores and challenges the scope of such a perspective both in terms of contents (i.e. the nature of management control related to the dimensions of transactions) and process (i.e. the way change is effectuated). It does so by theorizing as well as empirically investigating management control structure change through a case study at PCM (a Dutch newspaper publisher).

The theoretical analysis broadens existing frameworks of management control structures by particularly pointing to the possibility of including governance structures for internal transactions and exit threats (connected to a market mechanism) in the management control structure of an organization. However, the paper's empirical investigations challenge the broader framework: the possibility of an exit threat was not explicitly considered by top management (“the designer” of management control). More profoundly, empirical investigations challenge the calculative approach of the change and show that the change in management control is to a large extent a drifting process.

An instrumental calculative approach towards SSC‐related management control change should be complemented with a relational perspective on such change, in order to further explore its drifting character.

A transaction costs economics approach to change in management control might provide practitioners with insights into the efficiency of specific management control structures.

The paper contributes to the extant knowledge by both exploring and challenging a TCE‐perspective on SSC‐related changes in management control.

By distinguishing opportunism-based and bounded rationality-based transaction costs, the study examines how firms use equity/relational governance and boundary spanners' guanxi to govern their exploration alliances in a transaction cost economizing way.

This study used a survey methodology for data collection, and the sample consists of 150 exploration alliances formed by large Taiwanese information and electronic firms.

Findings of this study show that exploration alliances incur considerable transaction costs and require high-level equity control and relational governance. The positive exploration of alliance-equity ownership relationship will be weakened by boundary spanners' guanxi when guanxi serves to harmonize conflicts and mitigate opportunism-based transaction costs, thereby reducing the need for using costly equity ownership to govern exploration alliances. In contrast, the positive exploration alliance-relational governance relationship will be amplified when guanxi becomes a source of legitimacy in the Chinese guanxi institution. This relation-augmenting effect will drive more relational governance because guanxi and relational governance together allow alliance managers to obtain sufficient legitimacy in the formation of a common dominant frame, thereby mitigating bounded rationality-based transaction costs.

By distinguishing various moderating effects of boundary spanners' guanxi and separating transaction costs into two forms, this study contributes to the existing literature as well as advances our understanding of alliance governance decisions in the Chinese business environment.

There has been a steady increase in the amount of research and theorising in the area of interorganisational research, especially with regard to buyer‐seller arrangements in marketing channels (Andersen and Narus 1990, Bergen et.al., 1992, Boyle et.al., 1992). Alternative interorganisational governance models, such as joint ventures, strategic alliances, and sole‐sourcing are the reality of modern business management (Borys and Jemison 1989, Buckley and Casson 1988), and so interfirm governance has become a strategic management issue. The much‐cited work of Porter (1985, 1991) has focused on the optimal linkage of interfirm activities, and regards the planning and governance of interfirm relations as an important competitive strategic issue, a point reiterated by Heide (1994). The issue of channel relationships has been one of concern for both practitioners and academics, and theories such as those of transaction cost analysis (TCA), agency theory, and relational norms have on the one hand shed much light on the problems, and on the other provided a fruitful backdrop to much empirical research. Less attention has been given to the effects of time on these notions, both in the literature and in empirical research. In this article we provide an overview of the theories, and attempt an integration. The purpose of this article is to focus on transaction cost economics (TCE) and relational exchange theory to provide an overview of the areas of interorganisational research where relationships play a role. A number of areas where the theories diverge and converge are outlined. More importantly, we endeavour to bring the effects of time into consideration, and to develop propositions for further research.

The purpose of this paper is to explain the variation in the relationship between governance mechanisms and the effect of the relationship on contract performance, especially in controlling partner opportunism.

This study conducts a comparative case analysis of contract governance of “National Health Insurance Program” in India. The data are collected using field research through in-depth interviews and direct observation across three states in India.

The authors find that the governance mechanisms continue to complement and substitute, both in a dynamic manner, but until aligned with the nature of transaction, they are ineffective to mitigate opportunism, a critical dimension of contract performance. Inappropriate governance mechanisms inflate the gaps in incomplete contracts, resulting in partner opportunism.

The study draws findings from healthcare context and service-based contracting; therefore, the applicability of this study may vary in other contexts.

The paper highlights the need for building flexibility in the governance structure while designing contracts. Further, managers need to combine both governance mechanisms dynamically to align with the nature of the transaction to control partner opportunism.

The authors contribute to the existing debate on the conundrum of the relationship between governance mechanisms and provide a new explanation. The authors propose that it is not the specific governance mechanisms but the alignment of the governance mix with the nature of the transaction that determines the contract performance, especially control of partner opportunism.

In the present study a model based on trust relations and transaction cost analysis has been applied to explain the make‐or‐buy decision for accounting services. The present model of efficient boundaries, which combines the focus on trust relations with the transactional focus on frequency and asset specificity, has predictive power of the governance of accounting services. The effects of asset specificity on the make‐or‐buy decision of accounting services were substantially overshadowed by the relational attribute of trust and the transactional attribute of frequency. The study reveals strong support for the hypothesized positive link between trust and the buy alternative and the negative association between frequency of accounting transactions and the buy alternative. The present model has predictive power for an overall correct classification of the make‐or‐buy decision for accounting services.

This paper aims to take an economic transaction governance approach to explore the determinants for the effectiveness of the social practice of client entertainment in facilitating business relationships in China.

The analysis is based on a broader theoretical framework which posits that exchange relationships are regulated through a combination of market, legal and social relational mechanisms and client entertainment plays a governance role by reinforcing social relational governance to regulate the behaviors of economic actors. Upon this framework, this study proposes that the social behavioral features of client entertainment affect the effectiveness of client entertainment in facilitating exchange relationships and that time moderates such effects. These hypotheses were tested on survey data collected from a sample of Chinese sales managers.

Empirical results indicate that the effectiveness of client entertainment in facilitating exchange relationships is associated with its social behavioral features that could reinforce social relational governance, including intensity (i.e. value and frequency) and format (i.e. intimacy and observability) of entertainment activities, and the time factor plays a moderating role.

This study can potentially help policymakers to regulate client entertainment, and business practitioners to manage entertainment spending, more effectively and efficiently without causing legal and ethical problems.

This is the first study that takes an economic transaction governance perspective to directly explore how the social practice of client entertainment plays a constructive role in China’s economic life and what factors affect its effectiveness in playing such a role. It offers guidelines for policymakers, business managers and future research to manage and study this practice.