Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2014/4: Relationship-Specificity, Bargaining Power Growth, and Firm Performance

Iver Bragelien () and Joost Impink ()
Additional contact information
Iver Bragelien: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Joost Impink: Fisher School of Accounting, Warrington College of Business Administration, University of Florida, Postal: University of Florida, Warrington College of Business Administration, Fisher School of Accounting, PO Box 117166, 336 GER, Gainesville, Florida 32611-7166, USA

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

JEL-codes: D23; L14; L25

45 pages, February 20, 2014

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