Chapter 5: A Contingent View of Interfirm Cooperation: The Role of Firm Similarity in the Linkages Between Trust and Contract

Empirical findings on whether trust and contracting substitute or complement each other in interfirm cooperation have been equivocal. In this study, we suggest that organizational factors associated with observation and interpretation of partner behavior may help to explain the equivocal findings. We examine this idea with data collected from 156 trading companies in buyer-seller relationships. We find that trust and contracting act as substitutes in promoting cooperation between trading companies and their suppliers, but the effectiveness of contracting is contingent on firm similarity between trading partners. We also find that trust plays a dominant role in fostering cooperation. These findings have important implications for research on trust in interfirm exchange and for organizational-economic analysis of exchange.