The Effect of External and Internal Environments on Interfirm Governance

Abstract

Research fielded among manufacturing companies has been used to examine the interactive effect of interdependence structure and environmental uncertainty on Interfirm governance where they coexist. An analysis from the responses of 137 purchasing managers in manufacturing firms supported the proposition that changes in the level of uncertainty due to external circumstances increase the extent to which the manufacturers monitor the suppliers when the interdependence magnitude is low. However, environmental uncertainty has no effect on monitoring when interdependence magnitude is high. Reliance on the norm of information sharing varies inversely with environmental uncertainty when interdependence magnitude is high but does not vary significantly when interdependence magnitude is low. These results provide an important addition to transaction cost theory; the inclusion of inter-organizational interdependence in transaction cost theory increases the understanding of inter-organizational governance.

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