Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Relationship-Specificity, Bargaining Power Growth, and Firm Performance
() and Joost Impink
Abstract: We investigate the relevance of relationship-specificity
in explaining firm performance and firm value. First, we use an incomplete
contracts model to derive hypotheses on how relationship-specificity
interacts with bargaining power and growth. And, second, we test these
hypotheses on US data for the period 1998 to 2012. We use contract
intensity introduced by Nunn (2007) to measure relationship-specificity at
the industry level. Relationship-specific investments are considered to be
low when a company’s inputs are sold on an exchange and high otherwise.
Using size as a measure for bargaining power, we find support for our
hypothesis that the benefits of bargaining power increase with
relationship-specificity. We also find that growth has a stronger impact on
firm value when relationship-specificity is high, indicating that the
continuation value of the relationship matters.
Keywords: Relationship-specificity; firm performance; bargaining power; growth; (follow links to similar papers)
JEL-Codes: D23; L14; L25; (follow links to similar papers)
45 pages, February 20, 2014
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