Rachelle Sampson

Transaction cost economics argues that appropriately aligning transactions with governance leads to more efficient outcomes. While empirical evidence demonstrates that firms choose governance consistent with transaction cost predictions, the performance implications of governance so selected are less well explored. Here, I examine the cost of inappropriate governance in the context of R&D alliances. Two types of inappropriate choice are evaluated: governance that gives rise to excessive contracting hazards or excessive bureaucracy. Using a sample of R&D alliances in the telecom equipment industry, I find that alliance governance selected according to transaction cost arguments improves collaborative benefits substantially over governance not so selected. Interestingly, governance imposing excessive bureaucracy reduces collaborative benefits more than governance imposing excessive contracting hazards does. These results provide empirical evidence of the cost of inappropriate governance and have implications for research on the limits of internal organization and that linking organizational form and innovation.