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The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical Evidence from the United States, Japan, and Korea

The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical... In this paper we investigate the relationship between supplier trust in the buyer and transaction costs and information sharing in a sample of 344 supplier-automaker exchange relationships in the United States, Japan, and Korea. Our findings indicate that perceived trustworthiness reduces transaction costs and is correlated with greater information sharing in supplier-buyer relationships. Moreover, the findings suggest that the value created for transactors, in terms of lower transaction costs, may be substantial. In particular, we found that the least-trusted automaker spent significantly more of its face-to-face interaction time with suppliers on contracting and haggling when compared to the most trusted automaker. This translated into procurement (transaction) costs that were five times higher for the least trusted automaker. Finally, we argue that trust is unique as a governance mechanism because it not only minimizes transaction costs, but also has a mutually causal relationship with information sharing, which also creates value in the exchange relationship. Other governance mechanisms (e.g., contracts, financial hostages) are necessary costs incurred to prevent opportunistic behavior, but do not create value beyond transaction cost minimization. Our findings provide empirical evidence that trustworthiness lowers transaction costs and may be an important source of competitive advantage. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Organization Science INFORMS

The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical Evidence from the United States, Japan, and Korea

Dyer, Jeffrey H.; Chu, Wujin
Organization Science , Volume 14 (1): 12 – Feb 1, 2003
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References (46)

Publisher
INFORMS
Copyright
Copyright © INFORMS
Subject
Research Article - Special Issue: Trust in an Organizational Context
ISSN
1047-7039
eISSN
1526-5455
DOI
10.1287/orsc.14.1.57.12806
Publisher site
See Article on Publisher Site

Abstract

In this paper we investigate the relationship between supplier trust in the buyer and transaction costs and information sharing in a sample of 344 supplier-automaker exchange relationships in the United States, Japan, and Korea. Our findings indicate that perceived trustworthiness reduces transaction costs and is correlated with greater information sharing in supplier-buyer relationships. Moreover, the findings suggest that the value created for transactors, in terms of lower transaction costs, may be substantial. In particular, we found that the least-trusted automaker spent significantly more of its face-to-face interaction time with suppliers on contracting and haggling when compared to the most trusted automaker. This translated into procurement (transaction) costs that were five times higher for the least trusted automaker. Finally, we argue that trust is unique as a governance mechanism because it not only minimizes transaction costs, but also has a mutually causal relationship with information sharing, which also creates value in the exchange relationship. Other governance mechanisms (e.g., contracts, financial hostages) are necessary costs incurred to prevent opportunistic behavior, but do not create value beyond transaction cost minimization. Our findings provide empirical evidence that trustworthiness lowers transaction costs and may be an important source of competitive advantage.

Journal

Organization Science – INFORMS

Published: Feb 1, 2003

Keywords: Keywords : Trust ; Transaction Costs ; Information Sharing

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