THE MEDIATED EFFECT OF FORMAL AND INFORMAL CONTROL ON GOVERNANCE FORMS

The present paper employs the perspective of Transaction Cost Economics (TCE) to analyze the relevance of formal and informal controls in selecting the governance form. The evidence supports the influence of frequency, information sharing and relation-specific investments as a cause of control mechanisms, and the effect of these factors on the choice of the governance form, but there is no evidence about the combined interaction between these variables. The present work proposes that there is a mediation effect of formal and informal norms on the relationship between the TCE variables (frequency, information asymmetry and relation-specific investments) and the governance form. We applied Structural Equation Modelling to companies in the telecommunications sector in Spain. Our results confirm the opposite effect of formal and informal controls on the selection of governance forms and the mediation effect of these mechanisms of control on the selection of the governance form.

KEYWORDS
Governance forms; integration; formal control; informal control; transaction characteristics

Variable	Name	Description
Frequency	frequency	How often interactions take place
Information sharing	openness	To what degree a partner acquaints the other with its real being. How openly information are shared
Relation-specific investments	specificity	Rate of specific assets involved in the activity which were created during the relationship
Informal control	Informal	How many aspects are specified in writing. What is the reason for, and the content of, the relationship
Property rights	prop._rights	Level of control that the company has over performing of each activity
Ownership	ownership	Proportion of ownership the company has on the assets required for each activity

			Regression weights
			Estimate	C.R.	Standardized
ownership	<-	openness	0.490	7.069	0.404
prop._rights	<-	ownership	0.250	6.881	0.398
prop._rights	<-	openness	0.095	2.145	0.125
prop._rights	<-	frequency	0.298	2.817	0.150
prop._rights	<-	specificity	0.130	3.435	0.182
informal	<-	prop._rights	-0.774	-14.082	-0.657
informal	<-	openness	0.240	5.895	0.267
informal	<-	frequency	-0.338	-3.284	-0.144
informal	<-	specificity	-0.158	-4.287	-0.188
governance form	<-	ownership	0.353	11.079	0.460
governance form	<-	informal	-0.085	-1.714	-0.082
governance form	<-	prop._rights	0.536	8.315	0.439
Explicated variables		Squared Multiple Correlations	Explicated variables	Squared Multiple Correlations
prop._rights		0.283	informal	0.526
ownership		0.163	governance form	0.657

*Recommended values^ * (Cai, Goh, Souza, & Li, 2013; Hair et al., 1999; Mangin & Mallou, 2003; Xie & Peng, 2011)**	Models fit summary
	Direct effect model	Unconstrained model	Constrained model
Absolute measures
X² (p ≥ 0.05)	3.610 (0.307)	1.756 (0.625)	6.473 (0.372)
RMSEA £ 0.08	0.028	0.000	0.018
Incremental measures
NFI ≥ 0,9	0.894	0.997	0.989
RFI ≈ 1	0.789	0.980	0.963
IFI ≈ 1	0.980	1.002	0.999
TLI ≥ 0,9	0.957	1.015	0.997
CFI ≥ 0,95	0.978	1.000	0.999
Measure of parsimony
X²/DF < 5	1.203	0.585	1.079
Assuming unconstrained model to be correct:
	DF	CMIN	P
Constrained model^ p > 0.05 → the constrained model is accepted	3	4.717	0.194

Hypotheses	Result
Hypothesis 1: Formal control has a positive relation with the adoption of hierarchical governance forms	Accepted
Hypothesis 2: Ownership has a positive influence on property rights	Accepted
Hypothesis 3: Informal control has a negative influence on the adoption of hierarchical governance forms	Accepted
Hypothesis 4: Ownership has a positive influence on informal control	Nonsignificant
Hypothesis 5: Property rights have a negative influence on informal control	Accepted
Hypothesis 6a: The frequency of the relationship has a positive influence on informal control	Rejected
Hypothesis 6b: The frequency of the relationship has a positive influence on property rights	Accepted
Hypothesis 6c: The frequency of the relationship has a positive influence on ownership	Nonsignificant
Hypothesis 7a: Information sharing has a positive influence on informal control Hypothesis	Accepted
7b: Information sharing has a positive influence on property rights Hypothesis	Accepted
7c: Information sharing has a positive influence on ownership	Accepted
Hypothesis 8a: Relation-specific investments have a positive influence on informal control	Rejected
Hypothesis 8b: Relation-specific investments have a positive influence on property rights	Accepted
Hypothesis 8c: Relation-specific investments have a positive influence on ownership	Nonsignificant

Fundação Getulio Vargas, Escola de Administração de Empresas de S.Paulo Av 9 de Julho, 2029, 01313-902 S. Paulo - SP Brasil, Tel.: (55 11) 3799-7999, Fax: (55 11) 3799-7871 - São Paulo - SP - Brazil
E-mail: rae@fgv.br

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[TFN1] ^*
(Cai, Goh, Souza, & Li, 2013Cai, S., Goh, M., Souza, R. de, & Li, G. (2013). Knowledge sharing in collaborative supply chains: Twin effects of trust and power. International Journal of Production Research, 51(7), 2060-2076. doi:10.1080/00207543.2012.701780
https://doi.org/10.1080/00207543.2012.70... ; Hair et al., 1999Hair, J. F., Anderson, R. E., Tatham, R. L., Black, W. C. (1999). Análisis de datos multivariante. Upper Saddle River, USA: Prentice Hall.; Mangin & Mallou, 2003Mangin, J. P. L., & Mallou, J. V. (2003). Análisis multivariable para las ciencias sociales. Madrid, España: Prentice Hall.; Xie & Peng, 2011Xie, Y., & Peng, S. (2011). How do corporate associations influence customer relationship strength? The effects of different types of trust. Journal of Strategic Marketing, 19(5), 443-454. doi:10.1080/0965254x.2011.565882
https://doi.org/10.1080/0965254x.2011.56... )

[TFN2] ^**
p > 0.05 → the constrained model is accepted