The Effects of Contract Detail and Prior Ties on Contract Change: A Learning Perspective

Despite the large literature on alliance contract design, we know little about how transacting parties change and amend their underlying contracts during the execution of strategic alliances. Drawing on existing research in the alliance contracting literature, we develop the empirical question of ho...

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Bibliographic Details
Published in:Organization science (Providence, R.I.) R.I.), 2021-03, Vol.32 (2), p.480-499
Main Authors: Xing, Zhe (Adele), Mayer, Kyle J., Xie, Xuanli, Reuer, Jeffrey J., Klijn, Elko
Format: Article
Language:English
Subjects:
Action learning
Alliances
Analysis
Changes
China
Collaboration
Contract negotiations
contract renegotiation
Contracting
Contracts
Coordination
Enforcement
Governance
international joint venture
Joint ventures
Learning contracts
Management
Social aspects
transaction cost economics
Transaction costs
Ventures
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Summary:Despite the large literature on alliance contract design, we know little about how transacting parties change and amend their underlying contracts during the execution of strategic alliances. Drawing on existing research in the alliance contracting literature, we develop the empirical question of how contract detail and prior ties influence the amount, direction, and type of change in such agreements during the collaboration. We generated a sample of 115 joint ventures (JVs) by distributing a survey to JV board members or top managers and found that the amount of contract change is negatively associated with the level of detail in the initial contract but is positively associated with the number of prior ties between alliance partners. In relation to the direction of contract change, we find that the level of detail of the initial agreements negatively correlates with the likelihood of removing or weakening existing provisions and that prior collaborative experience positively correlates with the likelihood of strengthening of existing provisions or adding of new ones. We also find that prior ties affect the type of change in that JV parents prefer to change enforcement provisions more so than the coordination provisions in the contract. Our paper generates new insights on the complementarities between relational governance and transaction cost economics perspectives on alliance contracting.
ISSN:1047-7039
1526-5455
DOI:10.1287/orsc.2020.1399