| Abstract: | Contracts are generally assumed to be farsighted and effective in governing ex post trading behaviors. However, we know little about why not all the ex post trading behaviors can be contractible under conditions of contract flexibility. Drawing on Contracts as Reference Points Theory, this study focuses on contract flexibility which is viewed as an essential ingredient for success in long-term oriented Eastern cultures. We examine the trade-off between uncertainty coping and opportunism induced by contract flexibility, which is conceptualized as a reference-dependence decision problem. Using the dyadic survey data of supplier and buyer relationships, we find that contract flexibility facilitates uncertainty coping. The positive effect of contract flexibility on uncertainty coping is enhanced by buyer political ties and supplier power. The effect of contract flexibility on opportunism is mitigated by supplier power. Moreover, uncertainty coping increases relationship performance, whereas opportunism inhibits relationship performance. |
