The role of uncertainty in transaction cost and resource-based theories of the firm

This study develops a concept of uncertainty in the context of resource-based theory, and finds its impact on the firm's governance decisions. While the firm resources and capabilities are believed to affect on the firm's governance decision, it seems that no clear concept for uncertainty of this kind has been developed yet. This study suggests 'causal ambiguity within the firm' as a type of uncertainty in the context of resource-based theory. When a target firm has causally ambiguous resources and capabilities that a bidding firm cannot easily absorb, the acquiring firm will have difficulties in integrating two firms' resources after acquiring the target firm. This post-acquisition integration problem may decrease the acquiring firm's rent-generating potential. Specifically, this study compares two types of uncertainty in two theories of the firm. In transaction cost economics, behavioral uncertainty is found that is based on the threat of opportunism in the market transactions. In resource-based theory, process uncertainty is found that is based on the threat of causal ambiguity within the firm.; Behavioral uncertainty is operationalized by the existence of technological content in a previous transaction. Process uncertainty is operationalized by cross-citation rate in patents to measure how two firms may understand each other's capabilities and how well the capabilities can be integrated. More importantly, this study tests interaction effects between process and behavioral uncertainty, because these types of uncertainty may not be independent.; Empirical tests supported the effect of both types of uncertainty in transaction cost economics and in resource-based theory. In addition, the interaction between the two types of uncertainty was not significant. From this result, this study argues that the type of uncertainty that is found in resource-based theory plays a significant and independent role for governance choice of the firm. This study has an implication for resource-based theory. The impact of resources and capabilities on governance decisions is more clarified.