Showing papers on "Opportunism published in 2008"

The Institutional Economics of Corruption and Reform: Theory, Evidence and Policy

Abstract: Corruption has been a feature of public institutions for centuries yet only relatively recently has it been made the subject of sustained scientific analysis. Lambsdorff shows how insights from institutional economics can be used to develop a better understanding of why corruption occurs and the best policies to combat it. He argues that rather than being deterred by penalties, corrupt actors are more influenced by other factors such as the opportunism of their criminal counterparts and the danger of acquiring an unreliable reputation. This suggests a novel strategy for fighting corruption similar to the invisible hand that governs competitive markets. This strategy - the 'invisible foot' - shows that the unreliability of corrupt counterparts induces honesty and good governance even in the absence of good intentions. Combining theoretical research with state-of-the-art empirical investigations, this book will be an invaluable resource for researchers and policy-makers concerned with anti-corruption reform.

Trust‐opportunism paradox, relationalism, and performance in interfirm relationships: evidence from the retail industry

Abstract: Building on recent theoretical work documenting that interorganizational relationships (IORs) are ‘multifaceted and multiplex’ we investigate, from the agent's perspective, the joint effects of trust and opportunism in fostering (or inhibiting) relationalism, which, in turn, is predicted to influence performance within interfirm exchange relationships. Based on longitudinal survey data on 409 catalog intermediaries affiliated with a large retail firm, we found strong support for most of the hypothesized relationships. Implications for future research are offered. Copyright © 2008 John Wiley & Sons, Ltd.

A meta-analytic review of opportunism in exchange relationships

Abstract: The potential to engage in opportunism is a central theme in institutional economics, yet prior research has not quantitatively reviewed the role of opportunism in marketing research. This study uses meta-analytic techniques to synthesize research on opportunism conducted over the last quarter century. The analysis of 183 effect sizes extracted from 54 publications from the period 1982 to 2005 offers some support to extant channel theory. The research also indicates that the informant’s frame of reference and the research design significantly influence the observed effects. Implications of the findings and future research directions are discussed.

Contracting for Innovation: Vertical Disintegration and Interfirm Collaboration

Abstract: Rapidly innovating industries are just not behaving the way theory expected. Conventional industrial organization theory predicts that when parties in the supply chain have to make transaction-specific investments, the risk of opportunism will drive them away from contracts and toward vertical integration. Despite the conventional theory, contemporary practice is moving in the other direction. Instead of vertical integration, we observe vertical disintegration in a significant number of industries, as producers recognize that they cannot themselves maintain cutting-edge technology in every field required for the success of their product. In doing this, the parties are developing forms of contracting beyond the reach of contract theory models. In this Article, we connect the emerging contract practice to theory, learning from what has happened in the real world to frame a theoretical explanation of this cross-organizational innovation and to reconceptualize the boundaries of the firm accordingly. We argue that the vertical disintegration of the supply chain in many industries is mediated neither by fully specified technical interfaces that allow suppliers to produce a modular piece of the ultimate product, nor by entirely implicit relational contracts supported only by norms of reciprocity and the expectation of future dealings. Rather, we suggest that the change in the boundary of the firm has given rise to a new form of contracting between firms - what we call contracting for innovation. This pattern braids explicit and implicit contracting to support iterative collaborative innovation by raising switching costs. These costs, represented by the parties' parallel investment in transaction specific investment in knowledge about their collaborators' capacities, deter opportunism under circumstances when explicit contracting, renegotiation and the anticipation of future dealings cannot.

Information technology and organizational performance within international business to business relationships: A review and an integrated conceptual framework

Abstract: Purpose – Advanced information technology (IT) changes the way companies manage cross‐border supply chains. This paper examines the role of IT in the context of international business to business (B2B) relationship and its contribution to supply chain performance.Design/methodology/approach – This literature review paper develops a conceptual model of IT‐mediated relationships in international supply chain relationships. The framework integrates transaction cost economics and resource‐based theory perspectives and argues that IT capabilities facilitate supply chain performance, deter partner's opportunism and this process is mediated by B2B processes. Moreover, environmental, relational, cultural and country level moderators are examined.Findings – It is suggested that IT capabilities contribute directly to improved organizational process such as coordination, transaction specific investment, absorptive capacity and monitoring. These in turn contribute to strategic and operational performance outcomes. Ag...

Dealing with the Paradox of Embeddedness: The Role of Contracts and Trust in Facilitating Movement Out of Committed Relationships

Abstract: When there are constantly new, valuable opportunities to transact with alternative partners—a situation we refer to as exchange value uncertainty—long-term or committed transactions among the same individuals are discouraged. However, when opportunism creates exchange hazards, which escalate in nonrecurring transactions, individuals will be reluctant to take full advantage of the gains from switching to more valuable partners, thereby leading to “overembedded” exchanges. Instead of embracing new, valuable exchanges with strangers whose propensity to cooperate is uncertain, individuals may prefer to preserve recurring ties with familiar actors. Two mechanisms may encourage movement out of committed relationships in those conditions. First, formal contracts should serve as a safeguard to market participants, in the sense that they limit potential losses due to opportunistic behavior. Second, trust in general others (as opposed to trust in familiar people) reduces participants' perception of hazards in marke...

Inter-firm trust in buyer–supplier relations: Are knowledge spillovers and geographical proximity relevant?

Abstract: This paper empirically examines the impact of knowledge spillovers and geographical proximity on inter-firm trust in buyer–supplier relations. In particular, the effects of incoming knowledge spillovers from vertically related firms and firms’ appropriability problems are analyzed. The results suggest that there is a positive relationship between incoming knowledge spillovers from business partners and the level of inter-firm trust. Firms’ appropriability problems, however, lead to a decrease in inter-firm trust. Firms that cannot protect their technical knowledge have a greater perception of customer (supplier) opportunism. Furthermore, estimation results indicate that inter-firm trust between geographically close partners exceeds inter-firm trust between distant partners.

The Simple Micro-Economics of Public-Private Partnerships

Abstract: We build a unified theoretical framework to analyze the main incentive issues in Public Private Partnerships (PPPs) and the shape of optimal contracts in those contexts. We present a basic model of procurement in a multitask environment in which a risk-averse agent chooses unobservable efforts in cost reduction and quality improvement. We begin by studying the effect on incentives and risk transfer of bundling building and operation into a single contract, allowing for different assumptions on the contractual framework and the quality of the information held by the government. We then extend the basic model in several directions. We consider the factors that affect the optimal allocation of demand risk and their implications for the use of user charges and the choice of contract length. We study the relationship between the operator and its financiers and the impact of private finance. We discuss the trade-off between incentive and flexibility in long-term PPP agreements and the dynamics of PPP contracts, including cost overruns. We also consider how the institutional environment, and specifically the risk of regulatory opportunism, affects contract design and incentives. We conclude with some policy implications on the desirability of PPPs.

How Do Franchise Contracts Evolve? A Study of Three German SMEs*

Abstract: Although contracts are crucial for franchisors in managing relationships with franchisees, franchising research has not adequately investigated whether and how franchisors learn about effective contracts. This paper explores the evolution of formal contracts used by three German chains from the restaurant, hotel, and retailing industries. We describe the nature of learning involved in designing contracts in the sampled chains, and suggest reasons why contracts change over time. Despite the fact that drafting contracts with independent entrepreneurs is one of the important tasks the franchisor is rewarded for, we found that franchisors remain boundedly rational and therefore are unable to completely anticipate undesirable franchisee behavior and to incorporate suitable safeguards. We develop propositions to suggest that: (1) learning explains contract design capability better than does foresight, (2) a new management and the pursuit of uniformity lead to contract changes, and (3) the presence of an active franchisee council promotes the efficiency of the contract change process. We offer implications of our findings for theory, practice, and research. Introduction Franchising accounts for 40 percent of retail sales in the United States, where its share of sales in many industries (for example, restaurants, tax preparation, and printing and copying) is even higher (Combs and Ketchen 2003, p. 443). Franchising is also gaining in importance in many other markets, such as Australia, China, Germany, and India, and its use is thus rising globally (Alon 2000). Franchising relationships are a form of collaboration in which an upstream firm, the franchisor, sells the right to market its products and/or services using a proven business concept and its brand name to legally independent entrepreneurs, the franchisees. Formal contracts safeguard these exchanges against any inconsistent objectives between the vertical partners (Rubin 1978). For example, consider a case where an opportunistic franchisee becomes more aggressive in growing her business and starts selling the products of third parties. She doesn't pay any royalty to the franchisor on those additional sales (for simplicity, we will refer to a franchisor as "he" and a franchisee as "she" throughout). Although the franchisor did not provide the new products, he made investments in creating the brand value and building traffic for that outlet. Thus, he may not be able to capture the full benefit of those investments when she sells other products; the benefits are unduly shared by her and the third party. Clearly, formal contract provisions that restrict selling third-party products are necessary to safeguard against franchisee opportunism. Evidence suggests that contract design affects the survival of franchise chains (Azoulay and Shane 2001; Shane 2001; Shane 1998). However, despite the importance of appropriate contracts, franchising research has taken them for granted and neglected to explore where do the effective contracts come from. In particular, research has not adequately investigated whether and how franchisors learn about effective contracts. Exploring these questions--the agenda of this study--is important for uncovering the root causes for flawed contractual arrangements and for helping practitioners develop more appropriate contracts when venturing through franchising. The neglect of these important questions in previous research may have resulted from the dominant incentives-based perspectives, such as agency theory, applied to the analysis of franchising. Accordingly, a principal (the franchisor) develops a business format and delegates the responsibility to implement it in a geographic market to an agent (the franchisee--Carney and Gedajlovic 1991). In return, the franchisee gets to keep any profits left after paying the initial fees and a recurring royalty to the franchisor, and paying the costs of establishing and running the business to others, such as real estate owners and employees (Brickley and Dark 1987). …

Changing Interpretations of ‘Flexibility’ in the Planning Literature: From Opportunism to Creativity?

Abstract: This article reflects on changing interpretations of flexibility in planning literature from the planning scholars' point of view. Flexibility was seen as a negative feature in the 1960s in the literature. In time, the literature shifted towards the idea that flexibility may be a positive asset that helps the stakeholders of urban development to cope with the challenges of growing complexity and diversity in urban space and society. In the recent literature, flexibility is associated with creativity. The article discusses recent trends in planning literature practice to explain this change.

Sourcing practices and boundaries of the firm in the financial services industry

Abstract: We investigate sourcing decisions related to the back-office operations of 108 processes used by financial services companies. Guided by the arguments of transaction cost economics and the resource-based and knowledge-based view of organizations, we hypothesize that service customization and volume represent two key drivers of a service company's sourcing decisions. The inherent uncertainty of service customization gives rise to the transaction cost risks of opportunism and holdups and thus favors insourcing. Moreover, the competency gained from performing high-volume back-office operations aligns with the tenets of the resource-based view, which also favors insourcing. The empirical results corroborate these theoretical expectations. Copyright © 2007 John Wiley & Sons, Ltd.

Public and Private Forms of Opportunism within the Organization: A Joint Examination of Budget and Effort Behavior

Abstract: We assert that some forms of opportunistic behavior within the organization are relatively transparent and, therefore, public in nature. Further, while organizations can tightly control such public opportunism, it may not be optimal for them to do so in the presence of private opportunism. To study how public and private forms of opportunism differ and interact, we jointly examine budget and effort behavior in a participative budgeting experiment. We group participants into producer/manager pairs and set the parameters such that the producer extracts the largest share of surplus from the manager by publicly setting the budget at zero and privately providing low effort. When the producer unilaterally sets the budget, the public opportunism of budgetary slack is higher and more affected by learning than the private opportunism of low effort. Giving the manager the power to reject the budget not only reduces budgetary slack by about 50 percent, but also generates reciprocity expectations and behavi...

Religion, Opportunism, and International Market Entry Via Non-Equity Alliances or Joint Ventures

Abstract: One challenge that globalization has brought to business is that firms, as they expand their market globally through cross-border alliances, need to deal with partner firms from countries of different religious background. The impact of a country’s dominant religion on its firms’ international market entry mode choices has not been examined in traditional approaches. Focusing on hypothesizing the influence of Christian beliefs and atheism (i.e., the absence of belief in any deities), this research aims to fill the gap by exploring religion’s role in providing moral restraint on managers’ propensity for opportunism, which in turn affects these managers’ choices of their firms’ international market entry via non-equity alliances or joint ventures. A study of 22,156 cross-border alliances formed in 48 industries world-wide over 9 years provides new insight toward understanding religion’s influence on firms’ international market entry mode decisions through the ethical dimension of strategic leadership.

Competitive advantage in alliance governance: resolving the opportunism minimization–gain maximization paradox

Abstract: This paper offers a model of alliance governance that explicitly recognizes that managers of alliances simultaneously face the objectives of maximizing gains from trade while minimizing the threat of opportunism in the transaction—an apparent paradox. Our model shows that both the gains from trade and the threat of opportunism are influenced by firm characteristics (cooperative capabilities and trustworthiness) as well as transaction attributes (information asymmetry and asset specificity). The paradox may be resolved by strong form trustworthiness combined with relationship management capabilities because these characteristics allow the pursuit of gains from trade while simultaneously limiting the threat of opportunism. Copyright © 2008 John Wiley & Sons, Ltd.

The (not always sweet) uses of opportunism: post-communist political parties in Poland

Abstract: The author argues that political opportunism, an attitude common among communist party members before 1989, turned into both the blessing and the curse for post-communist parties in Poland. Once hopeful of secure careers in the authoritarian structures of the old regime, after the regime breakdown communists found themselves in a situation where the only chance for such a career could be associated with the party reinventing itself as a player in the field of pluralist democracy. Opportunistic attitudes of communist apparatchiks and nomenklatura members were instrumental in transforming them, individually and collectively, into effective actors in market economy and competitive politics. Yet the same attitudes doomed the post-communists once the opportunities associated with access to political power opened up widely. The same people who in the 1990s were so apt in turning the rules of democratic game into their collective advantage, in the 2000s acted with a sense of impunity and lack of any consideration for political accountability that in democracies arrives at the end of any election cycle. Plagued by corruption scandals, they lost their popular base: the economically disadvantaged groups to nationalistic populists, the urbane libertarians to liberal democrats.

The Dynamics of Government-to-Government Contracts

Abstract: This paper explores the dynamics of government-to-government contracting at the local level in order to examine how governments' shared organizational characteristics, notably a governance structure based on political accountability, potentially make them more attractive vendors for services that risk contract failure. Relying on panel data from the 1992 and 1997 International City/County Manager Association's (ICMA) Alternative Service Delivery surveys along with data from the U. S. Census and other sources, this paper identifies service areas in which governments most frequently turn to government vendors. In particular, a comparison of public works and transportation services—a service area with low risks of opportunism leading to contract failure—and health and human services—a service area with high risks of opportunism leading to contract failure—shows that contracting governments are more likely to utilize governments over private firms and nonprofits for high-risk services. This is not the case fo...

Managerial Opportunism in Accounting Choice: Evidence from Directors' and Officers' Liability Insurance Purchases

Abstract: We examine the relation between the managerial opportunism embedded in earnings management, and DO (b) whether managers purchase DO and (c) whether insurers can distinguish abnormally large insurance purchases driven by opportunism in accounting choice from those driven by abnormal risk aversion. Our evidence strongly supports the managerial opportunism hypothesis in managing earnings. In particular, we find that managers purchase insurance coverage in anticipation of opportunistic earnings management around equity issuing events. We also find that the best insured managers are those who manipulate the most the earnings. Interestingly, we find that the insurers are not myopic to the harms of opportunistic managerial behavior. They are able to detect and charge higher insurance premiums to managers with a hidden opportunistic agenda. Overall, these results suggest that the D&O insurance market enhances opportunistic managerial behavior. We do not find any support for the prediction that lower D&O insurance premiums are associated with good corporate governance quality.

Are managers agents or stewards of their principals

Abstract: Agency theory has been the dominant framework for a theoretical conceptualization of corporate governance. According to this view, the governance problem of uncertainty about managerial behavior can be solved by assuming opportunistic behavior and setting up governance mechanisms to curtail opportunism. However, the adequacy of agency theory has recently been challenged because distrust-based governance mechanisms that are in line with the theory’s recommendations have been ineffective to avoid managerial misconduct. Moreover, agency-based control and incentive systems have even been accused of being harmful. Stewardship theory has been proposed as an alternative approach. Building on a contrasting assumption about managerial behavior, this approach recommends trust-based governance designs that may, however, result in a one-sided and potentially disadvantageous system, too. On the basis of an in-depth analysis and critique of both theories this paper explores ways to either separate or combine the rival approaches. Due to shortcomings of these strategies a new perspective for the design of corporate governance systems is presented that opens the possibility of overcoming the theoretical tension.

The organizational governance of work relationships between employment and self-employment

Abstract: This paper analyses work relationships on the border between employment and self-employment and the consequences of making use of these new forms of work, especially on the side of firms. We study the complexity and variety of dependent forms of outsourcing by comparing the firm-internal solutions adopted to solve the arising control-flexibility dilemma in two industries (insurance, business services) embedded in two different institutional contexts (Italy, Austria). This paper shows that employers have established informal relational contracts that, in combination with formal contracts, reduce the threat of opportunism while simultaneously allowing a certain amount of control over the worker. We highlight the fact that a hierarchal structure returns to the relationship between worker and employer through the mechanisms of control and dependency. Finally, we stress that social relationships complement the market mechanism through the creation of assurance and trust as well as the development of specific configurations of social networks (i.e. network and temporal embeddedness).

Innovation and Corporate Governance: The Impact of Sarbanes-Oxley

Abstract: This Article shows that innovation is a process that has specific characteristics, that these characteristics give rise to an important corporate governance tradeoff, and that complying with the Sarbanes-Oxley Act (SOX) likely impacts this tradeoff to the detriment of innovation.Innovation is a process that results in new goods, services, methods of production, and forms of business organization. Innovation can vastly improve the welfare of consumers, investors, firms, and the economy. Decentralization and an emphasis on strategic internal control are governance structures that facilitate innovation. The ultimate purpose of these structures is to induce managers to overcome myopia and undertake the types of long-term, risky, dynamic, and knowledge-intensive activities that result in innovation.Innovation-facilitating structures and activities may, however, also increase the ability of managers to benefit themselves at the expense of investors. Value-maximizing companies must therefore negotiate the tradeoffs between reducing myopia and preventing managerial opportunism. SOX requires all public companies to increase objective monitoring of managers by outsiders to reduce opportunism. However, a substantial portion of innovative companies likely maximize value by placing a greater emphasis on proximate monitoring by insiders than SOX permits. The law thus upsets the optimal governance balance in such companies and likely undermines their ability to provide the most value to investors and consumers.

The Transaction Cost Theory of the Nonprofit Firm: Beyond Opportunism:

Abstract: Building on the transaction cost theory of the for-profit firm, the article argues that the transaction cost-economizing role of the nonprofit firm has two distinct dimensions. One of them consists of reducing the cost of searching for, processing, and communicating information and the other minimizes opportunistic behavior by means of aligning incentives of concerned stakeholders. So far, the transaction cost theory of the nonprofit firm has been emphasizing the second dimension while largely ignoring the first one. The article fills this gap by demonstrating that nonprofit firms are able to economize on transaction cost not only by minimizing opportunism but also by facilitating cooperation among those stakeholders who derive utility from contributing to the realization of their nonprofit firm's missions and hence would not be interested in opportunistic behavior. The article concludes by emphasizing the complementarity of the two dimensions of the nonprofit firm's transaction cost-economizing role.

Ownership structure and operating performance : evidence from the European maritime industry.

Abstract: In this paper we examine the relation between ownership structure and operating performance for European maritime firms. Using a sample of 266 firm-year observations, during the period 2002–2004, we provide evidence that operating performance is positively related with foreign held shares and investment corporation held shares, indicating better investor protection from managerial opportunism. We also find no relation between operating performance and employee held shares, suggesting no relation between employee commitment and firms’ economic performance. Furthermore, we find no relation between operating performance and government held shares, indicating that government may not adequately protect shareholders’ interests from managerial opportunism. Finally, we do find a positive relation between operating performance and portfolio held shares for code law maritime firms but not for common law maritime firms. Results are robust after adjusting for various firm and country risk characteristics. Overall, our results on the importance of the ownership structure are new to this setting and add to a large body of evidence linking ownership characteristics to corporate performance.

Is the Bank of Canada any more or less independent than the Fed? – revised version: Electoral Politics and Monetary Policy: Does the Bank of Canada Contribute to a Political Business Cycle?

Abstract: In this paper I apply the work of Abrams and Iossifov (2006) to monetary policy in canada to see if same political party affiliation is needed to produce evidence of political opportunism. After modifying their anaylsis to maintain consistency in the time series dimensions of their variables for Canada, I find both an error correction model and a Taylor rule of reformulation of their test generate evidence consistent with same party political opportunism, but only weakly so. On the other hand, I find also that more traditional indicators of political influence present even more convincing evidence of political dependence. In particular, the data suggest that the election of a Liberal party government, a decrease in the degree of political competition, and to a lesser extent, the election of a minority government all positively influence the expansiveness of Canadian monetary policy. In combination, these findings are consistent with the hypothesis that the Bank of Canada is less rather than more independent that is the Fed.

Restraining opportunism in hotel management contracts.

Abstract: Management contracts are widely used throughout the world as a mechanism for separating the ownership of hotel properties and their management. The research reported here concerns how Thai hotel owners seek to control the international hotel chains where properties are operated under hotel management contracts (HMCs). Adopting agency theory, the research findings reported here suggest that restraints against agent opportunism tend to focus on two key aspects: contractual controls and operational controls. Additionally, the findings also suggest that the outcome control needs to be viewed as a priority for effectively controlling hotel management companies when using HMCs.

Managerial Opportunism, Cost of Debt Financing and Regulation Changes: Evidence from the Sarbanes-Oxley Act Adoption

Abstract: This paper investigates the impact of managers’ opportunism on the cost of debt financing. Using managerial entrenchment and earnings management activities to proxy for managers’ opportunism, we find that firms with less entrenched managers enjoy lower corporate bond costs and higher credit ratings. In addition, our results suggest that bondholders generally require higher bond costs, while rating agencies assign lower credit ratings to firms that inflate their earnings (i.e. income-increasing earnings management). We further investigate the role of the Sarbanes-Oxley Act adoption on the perceptions of these two debt market actors. We find strong evidence that the dramatic changes required by this Act have enhanced the “monitoring” role of the debt market since we document that the above results are generally observed only for the post-SOX period.

Common learning and opportunistic behaviour in learning alliances

Abstract: In this paper, we propose a system dynamics model that gives deeper insight into the dynamics involved in opportunistic behaviour in learning alliances. Although current research widely recognizes opportunistic behaviour of alliance partners as a reason for alliance failure, most research in this field focuses on opportunism in the area of private learning and of outlearning the partner. Opportunism is mostly ignored in situations of common learning. In the following, we study opportunism in alliances where there is no intention of learning privately. Moreover, in current studies, feedback perspectives are often neglected. A feedback perspective can be helpful to explain the reasons for certain unanticipated long-term effects. We transfer findings from recent learning alliance literature and from a case study to a system dynamics simulation model. After describing the model structure, different scenarios offer insights into the dynamics of learning, particularly when the partners have different intentions with regard to common learning. We discuss the model runs and subsequently deduce propositions for future research. Copyright © 2008 John Wiley & Sons, Ltd.