Alleviating concerns of misappropriation in corporate venture capital: Creating credible commitments and calculative trust

Ventures are often hesitant to accept corporate venture capital due to concerns of intellectual property misappropriation. This is likely to be especially true with startup stage ventures operating in weak intellectual property rights regimes. Drawing on transaction costs economics and game theory, we examine how corporate investors might alleviate concerns of misappropriation by establishing credible commitments to their corporate venture capital program, which discourages opportunistic behavior. We submit that corporate investors can demonstrate credible commitments through prior investment quantity and prior investment continuity, therefore increasing the chances of forming a corporate venture capital–venture investment relationship. Our findings—using data from 11,136 ventures, 300 corporate venture capital investors, and 1782 investments across 18 years—demonstrate that ventures are more likely to pair with corporate venture capital investors that have made a credible commitment to their corporate venture capital program. Also, we find evidence that both quantity and continuity possess an enhanced effect on alleviating fears of misappropriation when a startup venture operates in the same industry as a potential corporate venture capital partner; this is because the corporate venture capital investor possesses both the absorptive capacity to understand the venture’s intellectual property and complementary capabilities to beat them to market.

Good Enough for Government Work? An Incomplete Contracts Approach to the Use of Nonprofits in U.S. Federal Procurement

This paper examines the use of the nonprofit organizational form to mitigate the impact of incomplete contracts in the public sector Transaction costs economics (TCE) predicts that the expense of incomplete contracts will rise with contract complexity and asset specificity. Previous research shows that government agencies increase their use cost-plus style contracts to economize on these costs. However, cost-plus style contracts may also increase the propensity to inflate procurement costs, also known as gold-plating, when relationally specific investments are required. Consistent with this expectation, we find that federal agencies reduce their use of cost-plus style contracts as asset specificity rises. The paper then explores the use of nonprofit organizations as an alternative tool to reduce contracting costs. Using data from the Federal Procurement Data System, we examine the choice of organizational form by federal agencies, as contracts become more or less incomplete. Consistent with our hypotheses, we find that the use of nonprofit organizations increases with contract complexity. In contrast to cost-plus style contracts, we find that the use of nonprofits also increases with asset specificity. We apply this finding to support the conjecture that the nonprofit organization form is used by government agencies to mitigate contract incompleteness without the associated risk of cost inflation. We conclude by offering suggestions for why nonprofit contracts appear relatively infrequently in federal procurement data.

Business relatedness in international diversification

Purpose Business relatedness is important in international diversification because it enables a firm’s transfer of resources to business units operating in foreign markets. The purpose of this paper is to develop a conceptual model based on a review of the major contributions of studies regarding the relatedness of subsidiaries, joint ventures or any other foreign unit. Design/methodology/approach The paper examines theory bases, the relatedness construct, data issues and the key achievements of previous studies. Drawing on organizational learning, transaction costs economics and industrial organization, a conceptual model and propositions are developed that intend to close important research gaps. Findings The model includes competitive strategy as a mediator of the effects of relatedness on foreign unit performance, type of foreign unit – that is, a wholly owned unit or joint venture – as a moderator; and competition barriers as a moderator. Research limitations/implications In future research, the propositions need to be transformed into testable hypotheses. It is recommended to treat relatedness as a multidimensional concept. Practical implications A firm is primarily advised to evaluate how its relatedness with foreign units enables knowledge transfer. A foreign cost leadership strategy benefits from product relatedness, while a differentiation strategy calls for resource relatedness. Originality/value The proposed model is unique as it includes an actionable component that mediates the effects of relatedness on international performance, i.e. competitive strategy, and concerns both wholly owned foreign units and international joint ventures.

Can contracts substitute hierarchy? Evidence from high-quality coffee supply in Brazil

Purpose A trend toward higher quality has demanded more strategic investments in the transaction of coffee supply in Brazil. Instead of internalizing this transaction, one firm, illycaffè, has challenged the vertical integration assumption by adopting contracts to coordinate its supply. Aiming to investigate whether this firm is losing economic efficiency in terms of coordination, or whether it is being efficient due to a proper definition and allocation of property and decision rights, the purpose of this paper is to analyze the transaction attributes of illycaffè’s suppliers according to the vertical integration dilemma. Design/methodology/approach The research design is based on a survey of 105 coffee growers analyzed through probit regression. Using a transaction costs approach, the study empirically tests whether well-designed contracts can act as a hierarchy by following the efficient alignment hypothesis. Findings The results emphasize asset specificity, uncertainty and incentives as determinants for being an illycaffè supplier. In other words, these findings demonstrate that a well-designed contract can substitute a hierarchy based on transaction costs economics. It contributes by illustrating other coordination alternatives overlapping vertical integration, even in environments of high uncertainty and asset specificity, which encourages other private strategies based on allocation of property and decision rights of hybrid arrangements. Originality/value The study adopts a unique survey about transaction costs in the transactions of high-quality coffee supply in Brazil. The main contribution is to shed light on the cases where, how and why contracts can substitute the need for in-house production, and to guide private and public strategies using this background.

Some General Considerations on Coordination Mechanisms and their Potential Role in Rural Policy

The objective of this paper is to discuss, from the theoretical point of view (transaction costs economics and system approach), the limitations of the governmental policy and rural policy in particular – which aims to intervene into coordination of transactions between economic agents. The conceptual framework of the paper is based on the distinction between three ideal types of coordination’s mechanisms (namely: competition, hierarchical control, values/norms and vertical liaisons) and real institutional arrangements, which could base only on one of ideal type or be a mixture of them. Rural policy is dedicated to solving the problem, which could not be solved solely by a market. However, governmental intervention suffer from failures of its own. This is a true particularly in the case of uniformly applied, extended top-down policy based mainly on hierarchical control. In such a case, market failures could be mitigated (and therefore market transaction costs), but, on the other hand, the political transaction cost (variable and fixed as well as) could be tremendous. The main conclusion of the paper is that one could expect that the minimum of both categories of transaction costs (market and political) will be probably achieved in the case of rural policy, which is composite of different coordination’s mechanism, not solely hierarchical control. This conclusion is in line with the shift to the new paradigm (Rural Policy 3.0) recommended by OECD, which generally is based on stronger decentralization, improved multi-level governance and involvement of non-government as well as private organizations.

Family Firms and the Choice Between Wholly Owned Subsidiaries and Joint Ventures: A Transaction Costs Perspective

We examine the effects of family control on entry mode choice by integrating Transaction Costs Economics with the family business literature. Using a dataset of 951 foreign investments, we investigate the role of family involvement on entry modes. After controlling for endogeneity, we find that if both the investing and the local firm are family firms, forming a joint venture is preferred, while if only the investing firm is a family firm, a wholly owned subsidiary is more likely. Results show that family control has an important impact on entry modes, an hypothesis that has not yet been fully explored.

Exploring the Sustainability of the Cooperative Model in Dairy: The Case of the Netherlands

Dairy cooperatives have existed in the Netherlands for more than 130 years. They hold a joint market share of more than 80% since the 1950s. This suggests that cooperatives are durable organizations in the dairy industry of the Netherlands. However, the number of dairy cooperatives has declined tremendously, with only five processing cooperatives left in 2015. The paper explores the paradox of high cooperative market share over a long period of time with a steady decline in the number of cooperatives. This historical account of the Dutch dairy industry distinguishes four periods of cooperative evolution. Classical theoretical explanations for the existence of cooperatives, such as bargaining power and transaction costs economics, can explain the rise of dairy cooperatives. However, they cannot sufficiently explain the long term success of the cooperative model in the Dutch dairy industry. Additional explanations can be found in institutional theory, including the impact of an enabling institutional environment.

CONTRACTS, SOCIAL NETWORK AND KNOWLEDGE DIFFUSION IN BRAZILIAN SUNFLOWER AGRI-FOOD CHAINS FOR POTENTIAL SUPPLY OF INNOVATIVE FOOD PROTEINS

The article analyzes the operation of sunflower agri-food chains in Brazil to understand possible ways to supply innovative sunflower food protein from Brazil. The findings from a multiple-case study approach show that the dynamic of operation of Brazilian sunflower agri-food chains are based on contracts, social network and knowledge diffusion. Although necessary, this governance arrangement has not been able to guarantee a sustainable long-term operation due to market, technological and supply chain management bottlenecks. Regional characteristics influence the level of transaction costs and the role of inputs suppliers in the chains’ operation. The introduction of high value-added food protein products could raise the comparative advantage of sunflower in relation to competing crops, benefiting the chain operation. This article contributes to the understanding of the operation of agri-food chains focused on new or non-established crops, besides reinforcing the complementarity of transaction costs economics and social networks in explaining the functioning of social-economic systems.

Greasing the Wheels of Change: Bribery, Institutions, and New Product Introductions in Emerging Markets

Despite the consensus on the negative country-level implications of corruption, its consequences for firms are less understood. This study examines the effect of bribery on the innovative performance of firms in emerging markets as reflected by new product introductions. I argue that bribery may help innovators in these markets to introduce new products by overcoming bureaucratic obstacles, compensating for the lack of kinship or political affiliations, and hedging against political risk. I also propose that the relationship between firm bribery and new product introduction will be negatively moderated (i.e., weakened) by the quality of the formal and informal institutions in place. Employing data from over 6,000 firms in 30 emerging markets and a wide range of empirical tests, my results support these hypotheses. These findings extend transaction costs economics by showing that bureaucratic obstacles and uncertainty can drive firms into illegal cost minimization strategies. Moreover, they augment institutional theory by expounding upon the ways that norms and informal practices moderate the efficiency of firm strategies in emerging markets.