Revisiting the interplay of trust and contracts: The roles of technological turbulence and dependence disadvantage

Abstract

Drawing on information processing theory, this study revisits the interplay between trust and contracts by comprehensively examining the impact of the interaction of different types of trust (i.e., ability trust and goodwill trust) and contracts (i.e., control contract and coordination contract) under different uncertainties (i.e., technology turbulence and dependence disadvantage) on supplier opportunism. We build a moderated moderation model to test the proposed hypotheses using a combined dataset of a survey of 200 Chinese manufacturers and secondary data. The results show that coordination contract weakens the effectiveness of ability trust but strengthens the effectiveness of goodwill trust. When firms face a high level of technological turbulence, both types of contracts weaken the effectiveness of ability trust in curbing opportunism, while under a high level of dependence disadvantage, contracts weaken ability trust but reinforce goodwill trust in curbing opportunism. Our results are found to be robust after being verified by a variety of statistical specifications and estimations. The results provide nuanced insights for both the literature and practice.