, Volume 27, Issue 3, pp 355-370
Date: 24 Apr 2009

Relational exchanges versus arm’s-length transactions during institutional transitions

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How do firms make strategic choices in response to institutional transitions? The literature suggests that with more market-oriented institutional transitions, firms may move from relational exchanges to arm’s-length transactions. However, it remains unclear under what circumstances such strategic transitions would occur. We develop a model to predict that such transitions are contingent upon the multiple facets of a country’s institutional profile, including informal institutions such as national culture and formal institutions that encourage market competition. Our model also specifies industry- and firm-level contingencies affecting these strategic transitions.

This research has been supported in part by an Ohio State University CIBER PhD Grant, the National Science Foundation (CAREER SES 0552089), and the University of Texas at Dallas Provost’s Distinguished Professorship. The views expressed are ours and not necessarily those of the funding organizations. Earlier versions were presented at the Academy of International Business (Beijing, June 2006), Academy of Management (Atlanta, August 2006), and Ohio State University (July 2006). We thank Jay Anand, Jay Barney, Seung-Hyun Lee, John Lin, Mona Makhija, Rachel Pinkham, and Oded Shenkar for the helpful comments and discussions.