Research On The Impact Of Inter-organizational Trust And Contract On New Firm Performance

The development of entrepreneurial economy will be a new engine for the new round of economic development of China and also a springboard for its sustainable development. More and more researchers began to pay attention to the application of social capital and social networks in entrepreneurship. Social network bridges external environment and new ventures, entrepreneurs engaged in an extensive set of social networks to capture external resources, to reduce new venture risk and thus minimize the "liability of newness and smallness" (Stinchcombe, 1965). Within the three elements of network-based research, we examined two alternative governance mechanisms underpinning an exchange to coordinate and manage interorganizational relations, namely their impacts on new venture performance. Trust and contract exist as different means through which a firm seeks to mitigate opportunism in exchange context characterized by risk, uncertainty and dependency.The main research content includes fours parts:Firstly, the literature review provided an in-depth analysis of basic theories of this research. Transaction cost theory gives an explaination of contractual relations of neworks on the hypothesis of bounded rationality and opportunistic behavior; On the other hand, social exchange theory emphasizes the role of trust in social exchange from the perspective of reciprocity. Next, we reviewed the current literature on relational governance mechanisms (such as trust) and formal governance mechanisms (such as contract). We find predecessors have obtained some achievement; however, there is still large research space left, which is the basis of this thesis. Finally we summarized the primary research elements of this research, which include trust, contract and new venture performance.Secondly, this research built a theory model of effects of inter-organizational trust and contract on new venture performance. We consider the characteristics of different stages of new ventures, the entrepreneur's reliance on exchange relationships based on trust and contract will vary as the entrepreneur moves through the network development process. Researchers argued that Chinese trational culture and transitional economy has created new features of inter-organizational trust and control. We take the firm age as a contingency variable, and examine the role of trust and contract in external relationship at start up and early growth stage in this specific context.Thirdly, based on the above analysis, we pointed out four hypotheses. Trust has positive impact on new firm performance at start up stage; trust has positive impact on new firm performance at early growth stage; contract has positive impact on new firm performance at early growth stage; trust has positive moderating effect on relationship between contract and new firm performance at early growth stage.The fourth part is concerned with empirical research, which validates the theory model and relevant hypothesis with SPSS based on the measurement of each variable. We collected questionnaires from 384 new firms, but 56 are excluded because of missing data of firm age, and 328 effective questionnaires are used in the final empirical analysis, among them, 138 are within three years, 190 are more than 3 years and below 8 years.The major findings of this study are as follows. First, the results show that trust has positive impact on new firm performance both at start up stage and early growth stage. Second, the results show that the contract has positive impact on new firm performance at early growth stage. Third, this study examines the moderating effect of trust on the relationship between contract and new firm performance and the results show the trust positively moderate the relationship between contract and new firm performance at early growth stage.This thesis contributed the current literatures in three major ways. Firstly, this paper examined the effect of both trust and contract on new firm performance, which is an extension and complement of the nework governance literature. Secondly, from a dynamic view, we took the firm age as a contingency variable, and examine the role of trust and contract in external relationship at start up and early growth stage. We also consider the different characteristics of new firm at start up and early growth stage, and examine the moderating effect of trust at early growth stage. Thirdly, quantitative research method has been applied in the research. Up to this point we built the model and tested four hypotheses under the context of Chinese trational culture and transitional economy.