Understanding governance structures of accounting: Trust relationships, transaction costs, and the make‐or‐buy decision

In the present study a model based on trust relations and transaction cost analysis has been applied to explain the make‐or‐buy decision for accounting services. The present model of efficient boundaries, which combines the focus on trust relations with the transactional focus on frequency and asset specificity, has predictive power of the governance of accounting services. The effects of asset specificity on the make‐or‐buy decision of accounting services were substantially overshadowed by the relational attribute of trust and the transactional attribute of frequency. The study reveals strong support for the hypothesized positive link between trust and the buy alternative and the negative association between frequency of accounting transactions and the buy alternative. The present model has predictive power for an overall correct classification of the make‐or‐buy decision for accounting services.