The efficacy of alternative mechanisms in safeguarding specific investments from opportunism

Purpose - Transaction-specific investments are often required in marketing channels in order to improve channel efficiency. However, such investments often increase the risk of opportunistic behaviors being sparked off. This paper aims to analyze the role of partners' investments in specific assets and the development of relational norms as safeguarding mechanisms against opportunism. Design/methodology/approach - Three hypotheses are developed in line with transaction cost economics and relational exchange theories. The hypotheses are tested on a sample of 479 manufacturer-distributor relationships in the food sector in Spain. Findings - The paper finds that partner-specific investments and relational norms are effective mechanisms against opportunism. However their efficacy differs depending on which opportunism (supplier's or distributor's) is to be avoided. Research limitations/implications - The paper focuses on two mechanisms, yet there are other safeguards that firms can employ. Practical implications - The partner's investments in specific assets are an effective safeguard for suppliers as well as for distributors. Companies should aim for balanced investment in this field, as it is the optimum way in which to avoid opportunistic behavior. Relational norms have shown to be effective only for distributors. Originality/value - The study adopts a bilateral approach analyzing the effects of the governance mechanisms on both supplier and distributor opportunism. The paper provides new evidence on the role of the partner's specific investments as a safeguard against opportunism. They do not directly act against opportunism, but they act as variables that moderate the causal relationship between the specific investments of the firm and the partner's opportunism.