The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical Evidence from the United States, Japan, and Korea

Jeffrey H. Dyer () and Wujin Chu ()
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Jeffrey H. Dyer: Marriott School, Brigham Young University, 790 Tanner Building, Provo, Utah 84602
Wujin Chu: School of Management, Seoul National University, Shinlim-Dong, Kwanak-Ku, Seoul 151, Korea

Organization Science, 2003, vol. 14, issue 1, 57-68

Abstract: In this paper we investigate the relationship between supplier trust in the buyer and transaction costs and information sharing in a sample of 344 supplier-automaker exchange relationships in the United States, Japan, and Korea. Our findings indicate that perceived trustworthiness reduces transaction costs and is correlated with greater information sharing in supplier-buyer relationships. Moreover, the findings suggest that the value created for transactors, in terms of lower transaction costs, may be substantial. In particular, we found that the least-trusted automaker spent significantly more of its face-to-face interaction time with suppliers on contracting and haggling when compared to the most trusted automaker. This translated into procurement (transaction) costs that were five times higher for the least trusted automaker. Finally, we argue that trust is unique as a governance mechanism because it not only minimizes transaction costs, but also has a mutually causal relationship with information sharing, which also creates value in the exchange relationship. Other governance mechanisms (e.g., contracts, financial hostages) are necessary costs incurred to prevent opportunistic behavior, but do not create value beyond transaction cost minimization. Our findings provide empirical evidence that trustworthiness lowers transaction costs and may be an important source of competitive advantage.

Keywords: Trust; Transaction Costs; Information Sharing (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (264)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:14:y:2003:i:1:p:57-68

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