Inter-organizational relationships and firm performance: A study of the US equity underwriting market in the investment banking industry

Abstract

The debate on how firms govern their inter-organizational relationships to foster their business performance is far from being settled. While several arguments suggest both transactional and relational mechanisms may act as complementary or substitutive forces, this paper explores and demonstrates how both mechanisms can be jointly exploited to enhance performance. Adopting the context of the US equity underwriting market, this paper reveals that an issuer adopting a transactional governance mechanism to manage its inter-organizational relationships with underwriters obtains a lower cost offering (cost performance) but may not entail price premium (price performance) of that offering. In contrast, an issuer taking a relational governance mechanism has superior price performance but worse cost performance. Nevertheless, this paper uncovers that an issuer adopting a synthesized mechanism obtains better cost performance and price performance by leveraging the advantages from both of the transactional and relational mechanisms.

Strategic management research in the Journal of Management & Organization: International in orientation with an Australasian edge

“…Lo and Hung (2015) using transaction cost and social network theory look at interorganizational links between issuers and underwriters that underpin the issuing performance of a firm. A series of hypotheses considering the effect of three mechanisms – a transactional mechanism, a relational mechanism and a synthesized mechanism – has on a share market offering’s price premium are tested.…”

“…Qualitative methods are appropriate for obtaining empirical insight into board of director interactions, while quantitative methods with archival and survey data are suitable for obtaining detailed understanding of board characteristics (Kiel & Nicholson, 2003;O'Shannassy, 2010). Lo and Hung (2015) using transaction cost and social network theory look at interorganizational links between issuers and underwriters that underpin the issuing performance of a firm. A series of hypotheses considering the effect of three mechanisms -a transactional mechanism, a relational mechanism and a synthesized mechanism -has on a share market offering's price premium are tested.…”

Proximity and inter-firm corruption: A transaction cost approach

“…To the best of our knowledge, no previous study has systematically examined such exchanges. Corruption as an exchange mechanism has mainly been viewed as involving firms and public actors (Basu, 2014;Lambsdorff & Teksoz, 2004, 2006Cuervo-Cazurra, 2015), and exchanges between firms as involving legal exchanges (Lo & Hung, 2015;Brinkhoff et al, 2015).…”

Executive antecedents of interfirm cooperation

“…The importance of cooperation is widely acknowledged throughout the history of mankind, including in business practice and research (Geh, 2010;Rezazadeh & Nobari, 2017;Smith, Carroll, & Ashford, 1995). Yet cooperation as an interfirm relationship mechanism entered into the focus of organization research only in the 1970s and 1980s following the seminal studies of Schermerhorn (1975), Axelrod (1984), Granovetter (1985), and Oliver (1990), among others, and became one of the most widely researched topics in organizational research (Dacin, Oliver, & Roy, 2007;Lo & Hung, 2015;Smith et al, 1995;Todeva & Knoke, 2005;Parkhe, Wasserman, & Ralston, 2006) because interfirm relationships are conceptualized as "interorganizational rent-generating processes" (Dyer & Singh, 1998: 661).…”