Risk Management in Alliance: The Effects of Contractual-Based Versus Relation-Based Governance

Focusing on alliances in high-tech industry, we apply theory of transaction cost and relational contract to explore the effect of uncertainty and experience on firms' choice of alliances governance. By using a sample of 99 strategic alliances in high-tech industry, we empirically examine the theoretical hypotheses proposed in this paper, and find some evidence supporting these hypotheses. Consistent with transaction cost economics (TCE), empirical results suggest that alliances are more likely to be organized by equity joint venture (EJV) when more uncertainties or complexities are involved. However, the existence of alliance experience can also significantly affect the alliance governance, and we find out that alliance experience may substitute for contractual-based governance to some extent, for both prior ties and reputation negatively correlate to the choice of equity alliance.