Social capital and supply chain relationships

Abstract

We examine the role of social capital in influencing decisions pertaining to buyer–supplier relationships. We report that firms make larger relationship-specific investments when their supply chain partners are headquartered in states with high social capital. This result is more pronounced when supply chain partners have incentives to engage in opportunistic behavior. Furthermore, the duration of supply chain relationships is longer when the firm and its supply chain partner are both headquartered in high social capital states, and when the partner invests in relationship-specific assets. Collectively, the evidence suggests that social norms reflecting trustworthiness facilitate investment and stability along supply chains.