Managing contracts for fairness in buyer-supplier exchanges

Despite the centrality of fairness in the moral and social fabric of governance, few studies relate fairness to contracting research. This paper assesses whether fairness accounts for the effects of contractual complexity and contractual recurrence on exchange performance. Based on a sample of 283 b...

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Bibliographic Details
Published in:Strategic management journal 2014-10, Vol.35 (10), p.1508-1527
Main Authors: Poppo, Laura, Zhou, Kevin Zheng
Format: Article
Language:English
Subjects:
Alliances
Attachment behavior
complex contracts
Complexity theory
Contract management
Contracts
Cooperation
Corporate governance
Corporate strategies
distributive fairness
Fairness
Governance
Mediation
Morality
Morals
procedural fairness
Procedural justice
recurrent contracts
Social interaction
Social perception
Socialization
Studies
transaction cost economics
Transaction costs
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Summary:Despite the centrality of fairness in the moral and social fabric of governance, few studies relate fairness to contracting research. This paper assesses whether fairness accounts for the effects of contractual complexity and contractual recurrence on exchange performance. Based on a sample of 283 buyer—supplier dyads, we find that procedural fairness partially mediates the effect of contractual complexity, whereas distributive fairness partially mediates the effect of contractual recurrence in fostering exchange performance. Moreover, monitoring better supports the use of contractual complexity, whereas socializing better supports the use of contractual recurrence in enhancing fairness perceptions. These results suggest that contractual design must go beyond its safeguarding function to establish a fair frame of reference, and managers should complement contracts with appropriate practices (e.g., monitoring or socializing).
ISSN:0143-2095
1097-0266
DOI:10.1002/smj.2175