Contract specificity and supplier performance in China: the contingent roles of institutional environments

Abstract

How does contracting function in emerging economies in which legal institutions are underdeveloped but guanxi norms are highly pervasive? Building on transaction cost economics and institutional theory, this study untangles two distinct facets of contracting, task specificity and contingency specificity and examines their contingent effects on exchange performance given different levels of legal inadequacy and guanxi importance. The results from a survey of 307 manufacturer–supplier dyads in China show that task specificity is overall more effective than contingency specificity at promoting exchange performance. However, its role declines when legal support is inadequate and when guanxi becomes prevalent within transactional environment. Contingency specificity is only useful when guanxi is important; it is not helpful when legal is inadequate.