Control mechanisms, interpartner trust, and performance in international joint ventures : a transaction cost approach

This study examined the moderating effects of cognitive and affective dimensions of trust in the relationship between control and performance in the context of international joint ventures (IJVs). Data were collected from 140 general managers of U.S.-foreign IJVs operating in the United States. Results were cross-validated with responses from U.S. and foreign IJV parent representatives. The study's conceptual model was developed based on extant research in the IJV control-performance relationship and the insights provided by the revised transaction cost theory (TO) that acknowledges the importance of interpartner trust in interorganizational relationships. The study's results clearly demonstrate the importance of incorporating trust when studying the IJV control-performance relationship. This, in itself, provides a tentative explanation for the empirical inconsistencies and contradictions of extant research in this area of investigation. In this vein, this study provided strong empirical evidence that the correct match of control mechanisms to the IJV transaction does not necessarily translate into superior performance. No significant direct effects between formal and informal control mechanisms and IJV performance were found. On the other hand, this research found that informal control mechanisms strongly interact with affective and cognitive dimensions of trust to explain the financial performance of IJVs. In fact, it was found that while there was a positive association between informal control and performance for IJVs characterized by high levels of either cognitive or affective trust, these constructs were negatively related for IJVs with low levels of either cognitive or affective trust. Moreover, the research findings provided empirical support for a unique joint effect due to the combination of cognitive and affective trust interacting with informal control in affecting IJV performance. Finally, this study supported a priori expectations that neither cognitive nor affective trust moderate the relationship between formal control and IJV performance.