Relational exchanges versus arm’s-length transactions during institutional transitions

How do firms make strategic choices in response to institutional transitions? The literature suggests that with more market-oriented institutional transitions, firms may move from relational exchanges to arm’s-length transactions. However, it remains unclear under what circumstances such strategic transitions would occur. We develop a model to predict that such transitions are contingent upon the multiple facets of a country’s institutional profile, including informal institutions such as national culture and formal institutions that encourage market competition. Our model also specifies industry- and firm-level contingencies affecting these strategic transitions.