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Relationship-specificity, bargaining power, growth, and firm performance

Bragelien, Iver; Impink, Joost
Working paper
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URI
http://hdl.handle.net/11250/194961
Date
2014-02
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  • Discussion papers (FOR) [556]
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 relationshipspecificity.

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.
Publisher
FOR
Series
Discussion paper;04/14

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