International Journal of Economics and Financial Issues
Vol. 1, No. 3, 2011, pp.88-98
ISSN: 2146-4138
www.econjournals.com

Governance Mechanisms and Buyer Supplier Relationship:

Static and Dynamic Panel Data Evidence from Tunisian Exporting SMEs

Bellouma Meryem
Faculty of Economics and Management of Nabeul- Tunisia

12 Avenue DOHA 2083 Cité La Gazelle- Tunisia
E-mail: mbellouma@yahoo.fr

ABSTRACT: This study seeks to understand the effect of transactional and relational governance
mechanisms on opportunism induced by the buyer supplier relationship. Using panel data of 386
Tunisian export companies between 2003 and 2008, the analysis shows that transactional as well as
relational governance mechanisms are negatively related to the opportunistic behavior of the customer.
In order to focus on internal corporate characteristics, the level of debt and the size of the buyer are
controlled. This study supports the role of contracts as formal governance tool in reducing inter-firm
opportunism which corroborates transaction cost economics. It also confirms some main notions in
social exchange theory. The role of trust as relational mechanism in governing the buyer-supplier
relationship has been verified. Finally, the findings of this paper sustain the complementarity view
toward relational and transactional governance mechanisms. The paper offers insights to executives of
companies to govern the buyer-supplier relationship in order to dispel opportunism by using
simultaneously transactional and relational mechanisms.

Keywords: Governance, Transactional governance mechanisms, relational governance mechanisms,
opportunism, buyer supplier relationship.
JEL Classification: G32, G34, L14

1. Introduction

As stressed by Heide (1994, p. 72), governance is “a multidimensional phenomenon which
encompasses the initiation, termination, and ongoing relationship maintenance between a set of
parties”. In this sense, governance mechanisms are tools used to arrange any exchange ties. Specially,
the relationship between buyers and suppliers must rely on these tools which entail both transactional
and relational mechanisms (Poppo and Zenger, 2002). Transactional mechanisms emphasize legal
conditions and incentive systems. However, relational mechanisms are those that govern exchanges
through moral control and trust (Jap and Anderson, 2003).

During the 1960’s and 1970’s, the relationship between the buyer and the seller was short term
with formal transactional negotiations in western economies (Morrissey, 2006). Those characteristics
imply a high probability of supplier’s switch or threat by the buyer and a lack of trust between the two
parties (Saunders, 1997). Since the 1990’s, a change in the form of the buyer-supplier relationship
from the traditional type towards the collaboration one is observed (Hines, 1994; Schmitz, 1995;
Holmlund and Kock, 1996; Saunders, 1997). This shift in the trade interaction generates many
modifications in the practices of companies by considering social values and trust (Morrissey and
Pittaway, 2004). Thus, the company may have other incentives like building its social capital by
adopting a trust behavior.

Transactional governance mechanisms are important in restraining opportunism in any
repeated economic exchange. However, the relative effectiveness of relational mechanisms in
enhancing buyer supplier relationship has yet to be addressed.

Academic literature considers trade credit as an external financing source for small and
medium companies in countries with less developed financial markets (Biais and Gollier, 1997;
Bougheas et al., 2009, Bellouma, 2011). In fact, most part of company’s sales and purchases in
emerging market are done on credit. Particularly, this is the case of small and medium Tunisian
companies. In 2008, the part of accounts payable in total liability is 40 percent and accounts receivable

Governance Mechanisms and Buyer Supplier Relationship: Static and Dynamic Panel Data
Evidence from Tunisian Exporting SMEs

represent 60 percent of total assets1. Thus, trade credit is a central component of corporate asset-
liability management and Tunisian SMEs have to look for new ways to use trade credit efficiently in
order to survive and to restrain opportunism (Bellouma, 2011).

Similarly to the information acquired by banks, trade creditors can use private information that
facilitates the grant of credit to their customers. Then, they act like banks which base their decisions
on the relationship establishment (Paul, 2007). This relationship lending view of trade credit is
confirmed by many authors like Jain (2001) and Paul and Wilson (2007) but it was difficult to validate
empirically because of a lack of data about the buyer-supplier relationship. Mainly due to this cause,
Petersen and Rajan (1997) use data base of small U.S. companies to test some trade credit theories’.
The information used is just about either the firm is the provider or the recipient of trade credit and
covers only one year.

Besides, several empirical studies have been conducted to observe the effect of enhancing
trade credit decision on corporate profitability (Deloof, 2003, Lazaridis and Tryfonidis, 2006 and
Uyar, 2009). This study is the first research who aims to understand the impact of relational and
transactional governance mechanisms on reducing opportunism between buyers and suppliers.
Specially, an empirical study is conducted to observe these link on the basis of Tunisian export SMEs
since trade credit decision is crucial for them. Indeed, they have to establish relationship with foreign
customers with different culture and habit. Moreover, governance tools have variable efficiency when
cultures and risk preferences differ. So, managers have to structure their relationships with their
partners by enhancing their coordination mechanisms. In addition to this contribution, this paper tries
to explain if governance mechanisms created in developed markets, such as the United States and
Western Europe, can be used in emerging market like Tunisia. Although emerging markets are subject
to increasing research attention in the field of governance mechanisms, existing studies remain
limited. Thus, this paper contributes to governance literature by clarifying the efficiency of
governance mechanisms in emerging markets by testing both transactional and relational governance
mechanisms. Finally, it should be noted that it is the first paper dealing with governance mechanisms
and their impact on opportunism using two kinds of panel data: static and dynamic.

The paper is organized as follows. Section two briefly provides the literature review and
presents the hypotheses. Section three describes the methodology adopted. Section four exposes the
findings. Finally, section five concerns the conclusion.

2. Literature review and derivation of hypotheses

Governance mechanisms are essential to ensure the stability of buyer– supplier relationships
(Benton and Maloni, 2005). Opportunistic behaviors, objectives divergences, operational routines
differences and unpredicted market changes are considered as factors implying conflict between
buyers and suppliers and as reasons of control (Jap and Anderson, 2003). The relationship
development between supply chain members can be realized through transactional and relational
governance tools.

In this section, theoretical and empirical researches on transactional mechanisms are first
exposed. Then, existing literature of relational mechanisms is presented. On the basis of this
overview, testable hypotheses are derived.
Transactional mechanisms: The formal governance tools in the buyer-supplier dyads

According to transaction costs analysis, a contract between the buyer and its customer clarifies
the transactions, the price, the agreements and safeguards. This theory presumes that the contract
terms (quantity, quality, and duration) are well specified (Williamson, 1999). The system guiding the
transactions between the buyer and the supplier is monitoring which incites both parties to reduce the
information asymmetry and the opportunistic behaviors. Consequently, the absence of information
asymmetry may mitigate conflicts between the buyer and the supplier, prevent opportunism and
prompt mutual trust.

Transactional mechanisms are considered by Liu et al. (2010) as an ex ante governance tool
used in monitoring buyer–supplier relationship through contractual clauses and bilateral transaction-
specific investments (Luo, 2007).Specially, contractual guidance implies a legal framework to enhance
relationship performance perceived by the partners involved.

1 Statistics from the Tunisian consulting Group “Synergia”.

International Journal of Economics and Financial Issues, Vol. 1, No. 3, 2011, pp.88-98

As argued by Williamson (1985), a well-specified contract states the rights and obligations of
each party and how to face future situations such trading practices or penalties. Thus, contracts make
the relationship explicit and clear. They prevent opportunism through behavioral boundaries and legal
forces (Liu et al., 2010). Otherwise, some psychology theorists argue that contracts accentuate control
and may indicate mistrust between the two parties. In other words, in uncertain situations, contracts
may induce opportunism.

Given the asymmetric information, contracts tend to be incomplete (Grossman and Hart, 1980)
and cannot restrain opportunism. Thus, transaction-specific investment can be used as an incentive
instrument in monitoring relationships. The transaction specific investment can be tangible (specific
tool or equipment) or intangible (specific knowledge or capability) (Jap and Anderson, 2003).This
investment increases partners’ interdependence on each other. It has considerable value when bilateral
relationship between buyer and seller is not interrupted since it is difficult to redeploy outside a
particular relationship (Lohtia et al., 1994). Transaction specific investment reduces the opportunistic
behavior of each party and provides incentives to continue the partnership and to promote party’s
accountability (Kotabe and al., 2003). In the same way, it is likely to serve the firm’s competitive
advantages since it creates value for the partners in the form of cost saving and profit enhancement.
Based on the above discussion, I hypothesize:
Hypothesis1. The use of transactional mechanisms (contract or transaction-specific investments)
reduces opportunism in buyer–supplier dyads.
Relational mechanisms: An informal governance mechanism tool in the buyer supplier dyads
In addition to the transactional governance mechanisms, relational ones have been recently
considered as useful to inhibit opportunism and to enhance cooperation in buyer –supplier exchanges
(Kim, 2000, Liu et al. 2010). According to social exchange theory, opportunistic incentive of one
partner is restrained by the ostracism by the other (Levinthal and Fichman, 1988). Thus, relational
governance mechanisms generate norms of social connections embedding authoritative bonds in
limiting opportunism2. These social links increase the commitment of the parties and imply a
cooperative relationship through shared norms and values (Seabright et al., 1992). Increasing harmony
between the buyer and the seller changes self-centered behavior to solidarity behavior.

Relational mechanisms cover relational norms and trust that govern buyer supplier
relationship by creating a social environment (Luo, 2007). As the relationship lasts, relational norms
and trust encourage the development of relationship-specific opportunities. Consequently, the buyer
and the customer can reduce transaction cost and opportunism. Relational norms refer to behavioral
anticipations shared by a group in order to reach a collective goal, to solve problems and to
accomplish performance objectives.

The fulfillment of these norms appears from the exchange of useful information between the
buyer and the supplier, the solvency of conflicts and problems, the discussion through joint
consultations… (Poppo and Zenger, 2002).

Mian and Smith (1992) suggest that trade creditors accumulate private information over time
about their customers. The authors note that trade creditors are relationship lenders. The collection of
non-public information allows suppliers to better appreciate the buyer’s risk profile and moderate
adverse selection and moral hazard problems in the trade credit process. This type of information
characterized by Berger and Udell (2002) and Bellouma et al. (2009) as soft information is acquired
by the seller about the buyer through direct contact. Thus, information exchange reduces asymmetric
information and supports the harmonization of interests. Socialization improves exchange outputs
through the use of this private information flows rather than resorting to contracts. Companies can
support their relationships with customers through many socialization plans, such as enhancing
technical efficiency and increasing assistance. The socialization efforts boost the trust between the
channel partners and reduce possible conflict.

Thus, trust ameliorates the cooperative atmosphere between the buyer and the supplier through
developing honesty. Besides, the exchange partners are assured that the other doesn’t behave
opportunistically such lying, cheating or not fully revealing information (Dyer and Chu, 2003).

2 Opportunism (cheating, violating an agreement, hiding information…) increases transaction costs and limits
the development of trust (John, 1984).

Governance Mechanisms and Buyer Supplier Relationship: Static and Dynamic Panel Data
Evidence from Tunisian Exporting SMEs

Therefore, relational governance mechanisms can be efficient when the buyer and the supplier respect
each other rights, benefits and responsibilities.
In light of the above, I propose:
Hypothesis2. The use of relational mechanisms (relational norms or trust) reduces opportunism in
buyer–supplier dyads.
Relative importance of transactional and relational mechanisms

Liu et al. (2010) argued that transactional mechanisms are more effective than relational ones.
In fact, relational mechanisms have limits on curtailing opportunism due to the lack of formal
guidance of buyer supplier relationship. For instance, too much trust will either reduce the
commitment of one party to monitor the other or increase the opportunism of one partner (Jeffries and
Reed, 2000). Besides, transaction specific investment may be more efficient in governing repeated
exchange (Williamson, 1983). Indeed, in the case of buyer supplier relationship, the partner will loose
the advantage of transaction specific investment if he seeks only its own gain (Luo, 2007).

The high number of contracts terms and transaction specific investment reflect the importance
of the exchange relationship for the two parties (Child and Tse, 2001). They also reveal, in an ex ante
perspective, the capacity of the buyer and supplier to solve problems (Luo, 2002). However, highly
stipulated contracts may handicap the commitment of the buyer and the supplier for gaining new
opportunities (Bernheim and Whinston, 1998). Particularly, unanticipated eventualities may occur
after the contract is signed. According to social exchange theory, opportunism can be reduced by trust
since transactional governance mechanisms can be costly in the case of socially embedded economic
activities. Thus, the flexibility of relational mechanisms will support the buyer and the supplier to
enhance their exchange relationship beyond the specification of the contracts. With efficient relational
mechanisms, partners are able to respond to the environment uncertainty and to deal with unpredicted
problems (Paulraj et al., 2008). Under the governance of relational mechanisms, the buyer and the
supplier improve communication, information share and solidarity. This is even more perceptible in
emerging markets where economic and institutional environments are changing rapidly that no
contracts can practically specify all eventualities (Luo, 2007).
I finally expect that:
Hypothesis3. Relational mechanisms (relational norms or trust) are more effective than contractual
mechanisms (contracts or transaction-specific investments) in reducing opportunism.

3. Methodology

The purpose of this study is to identify the impact of transactional and relational mechanisms
on reducing opportunism between the buyer and the supplier with reference to Tunisia. In this section,
we present the data collected, the variables used, the hypothesis tested and the statistical techniques
applied in the investigation.
Data collection and sample characteristics

The data were obtained from Tunisian Export Promotion Center (CEPEX)3. The choice of
Export companies can be explained by the importance of trade credit for them and the competitive
environment in which they operate. The data gathered are based on financial statements of 410 export
companies dressed by the CEPEX. The information coming from the annual financial statements isn’t
sufficient.In order to scrutinize seriously the impact of relational and transactional mechanisms on
reducing the opportunism between the buyer and the supplier; I designed a questionnaire to describe
their relationship along the period 2003-2008. With three reminders (calls, emails and re-mailing), I
received 394 returned questionnaires of which 386 were complete.

Specifically, 136 companies work at the food industry, 96 product construction materials, 104
run textile business, 24 operate in metal industry and 22 have a service activity. The panel is mainly
composed of limited liability companies (67.8%). The limited corporations represent only 32.2%.
20.2% of companies in the sample export over 50% of their products towards four foreign markets

3 The CEPEX is a governmental organism which offers assistance for export Tunisian companies.

International Journal of Economics and Financial Issues, Vol. 1, No. 3, 2011, pp.88-98

(U.S, Asia, Europe and Arabic Maghreb union). 53.2% employ less than 50 workers. Thus, they are
considered as small and medium-sized companies4.
Variables of the analysis
The dependant variable of the study is: Days of Sales Outstanding it: Days of sales outstanding reflects
the average number of days conceding by the supplier to its customer in order to collect revenue from
sale. It designs the length of trade credit maturity. It’s measured as accounts receivable x 365/sales
(Deloof, 2003). A low number of days of sales outstanding shows that the company collects its
accounts receivable in fewer days. However, a high number indicates that a company grants its
customer a credit and takes longer time to gather money. Besides, a high DSO may be a sign of the
opportunism of the customer who aims to maximize its own benefits.
The independent variables included in the study are divided into three categories:
Variables relating to transactional governance mechanisms
Contract it: Contract is a dummy variable which takes 1 if the respondent affirms that his relationship
with the customers is governed by formal contracts and 0 otherwise.
Transaction Specific Investment it: Transaction specific investment is a dummy variable which takes 1
if the respondent affirms that the company has made significant investment for its customer such as
providing specific products or facilities in distribution and 0 otherwise.
Variables relating to relational governance mechanisms
Social Contact it: The social contact is the first relational governance mechanism. It is a dummy
variable which takes 1 if the respondent replied “high” to the question: “How do you consider social
contact with your customer in deciding trade credit conditions?” and 0 otherwise.
Turnover it: The Turnover of the export company’s credit manager addresses directly his role in the
production of soft information. It is a dummy variable which takes 1 if the respondent replied “high”
to the question: “is the number of credit managers dealing with your customers is high or low?” and 0
otherwise.
Control variables
Sizeit: The size of the company is measured by the natural logarithm of sales in million Tunisian dinars
(TND) (1USD = 1,4386TND). Financial and organizational restrictions of the companies may limit
the period of trade credit for suppliers.
Debt Ratio it: The debt ratio (Short Term Loans /Total Assets). It indicates the proportion of
company’s short term debt relatively to its assets. It gives an idea about the company’s ability to cover
its short term assets and specially its accounts receivable.
Data analysis and results

Table 1 reports the average, the standard deviation, the minimum and maximum values of the
variables included in the study.

In the panel used, companies collect their cash from receivables after an average of 97.943
days with standard deviation of 40.608 days and a minimum of 15.546 days. The mean value of the
company size is 0.891 with a standard deviation of 0.492. The minimum value is -0.36 and the
maximum is 2.336. The average of debt ratio is 38.1 % with a standard deviation of 13.5%. The
minimum level of debt is 10% which may explain the incapacity of the companies of the study to
access to external financing. 80% of the companies find that the social contact between them and their
customer is important to obtain specific information. The turnover of credit manager is not important
in our sample. In fact, 23.4% of the companies have a high turnover of their credit managers in the
period of the study. 57.51% of the companies find that their relationship with their customers is based
on trust. However, 72.62% of the companies govern their relationship with their customers by using
explicit contracts. Finally, only 5.31% of the companies use transaction specific investment as formal
governance mechanisms to develop their relationship with the buyers. In order to capture the impact
of relational and contractual governance mechanisms on reducing opportunism between buyers and
suppliers, I use static and dynamic panel data regressions to identify micro-level information
imperceptible in cross section or time series data. The static model with panel data is presented as
follows:

4 “A wide consensus among national officials seems to exist on a non-official definition of SMEs as those
enterprises employing between 10 and 100 workers. This definition, however, is not stated clearly, nor it appears
in any official document” Di Tommasso et al. (2001: 44).

Governance Mechanisms and Buyer Supplier Relationship: Static and Dynamic Panel Data
Evidence from Tunisian Exporting SMEs

Yi,t = αi + β Xk,i,t + Δt + εit (1)
Where the subscripts i and t represent respectively firm and time period respectively, Yi,t is the vector
of dependant variable, Xk,i,t is the vector of explanatory variables, β is the vector of parameters to be
estimated, αi is the individual effect which is constant for firm i over t, Δt is the time effect which is
constant for the period t over i and εit the term error is (iid).

Table 1: Descriptive statistics

Variables Mean Standard Deviation Minimum Maximum
Days of sales outstanding 97.493 40.608 15.546 199.485

Debt ratio 0.381 0.135 0.1 0.93
Size 0.891 0.492 -0.36 2.336

Frequency Percentage
Social contact=0
Social contact=1

462
1854

20
80

Turnover= 0
Turnover

1774
542

76.6
23.4

Trust=0
Trust= 1

984
1332

42.48
57.51

Contract=0
Contract=1

634
1682

27.38
72.62

Transaction specific investment =0
Transaction specific investment=1

2193
123

94.70
5.31

To estimate the model (1), the fixed effects model and the random effects model are used. In a

fixed effects specification, αi corresponds to the individual cross-sectional unit. The Chow test is
performed to confirm the fixed effects model (Hsiao, 1986). In other words, the hypothesis that the
individual coefficients αi are not all equal will to be proved. This corresponds to test the null
hypothesis H0: αi = ... = αN =α. To validate the existence of significant heterogeneity across firms, the
alternative hypothesis must be accepted. Conversely, in a random effects model, αi doesn’t represent
an individual cross-sectional unit and the stochastic error term εit becomes iti   . The generally
accepted strategy of choosing between fixed and random effects is running a Hausman test (1978)
under the null hypothesis E (αi/xit) =0. If the null hypothesis is rejected, the effects are considered
fixed. However, if it is accepted, the effects are random.

Besides, the buyer-supplier relationship should be modeled by taking into account its dynamic
nature. The general form of the model is:

yit = i yit-1 + β’ xit + ui + νit (2)
Where the subscripts i and t represent firm and time period respectively, Yi,t is the vector of dependant
variable, Yi,t-1 is the vector of the lagged dependant variable, Xk,i,t is the vector of explanatory
variables, β’ is the vector of parameters to be estimated, αi is the individual effect which is constant for
firm i over t, ui are firm-specific random effects and vit the overall errors. The independent variables
and the lagged dependent variable are correlated. Therefore, the estimators provided by the pooled
Ordinary Least squares (OLS) are inconsistent and biased. To obtain consistent estimators, the
Generalized Method of Moments technique (GMM) in first-differences is used as Arellano and Bond
(1991). They proceed by first differencing the equation (1) to remove ui. All the lagged variables are
used as instruments in the first-differenced equation.
yit - yit-1= i (yit-1 - yit-2) + β’ (xit - xit-1) + (ui-ui) + (vit - vit-1 ) (3)

As noted by the authors, the new error term (vit -vit-1) is correlated with the lagged dependent
variable (yit-1 - yit-2). The one-step estimator supposes homoskedastic errors while the two-step
estimator constructs heteroskedasticity-consistent standard errors by using the first-step errors.
According to Arellano and Bond (1991), although the homoskedasticity of the error terms, the two-
step estimators are more proficient than the one-step when the number of firms is important. The
efficiency of the GMM estimator depends on the effectiveness of the instruments and the un-
correlation of the error terms. Thus, the Sargan test of over-identifying restrictions is done.

International Journal of Economics and Financial Issues, Vol. 1, No. 3, 2011, pp.88-98

4. Empirical results
In this subsection, the results presented in table 2 are discussed. The Chow test is significant at

1% and proves the firm-specific effects. The Hausman test shows that the fixed effect model is more
suitable than the random effect model. Only the size of Tunisian companies has a negative effect on
days of sales outstanding. This result entails that larger companies give fewer days for their customer
to pay their purchases. Accordingly, the small sized companies are more likely to be subject to the
opportunistic behavior of their customers.

Table 2: Static Panel Data versus Dynamic Panel Data

Variables

Static Panel Data
Fixed Effect Random Effect

Dynamic Panel Data
One step Two step

Days of sales
outstanding -1

Contract

Transaction

Specific Investment

Debt Ratio

Size

Social Contact

Turnover

Constant

-0.007
(-0.31)

-0.089
(-0.44)

-0.125
(-0.07)

-42.090
(-1.86)*

0.867
(-0.72)

0.052
(0.05)

97.201
(44.27)***

-0.011
(-0.62)

-0.017
(-0.51)

-0.438
(-0.12)

-0.449
(-0.44)

-0.880
(-0.74)

0.058
(0.05)

97.650
(33.70)***

0.273
(3.00)***

-0.089
(-3.75)

-0.056

(-0.62)

-57.718
(-1.25)*

-30.714
(-1.60)

45.156
(2.21)

-8.030
(-0.31)

162.948
(3.54)***

0.300
(2.65)***

-32.101

(-11.86)**

-0.023
(-0.34)

-120.373
(-2.05)**

-43.625
(-1.78)*

-75.388
(3.00)***

-6.240
(-0.88 )

236.860
(3.71)***

Chow test
F (5, 1920)

Hausman Test Chi2

(5)
Sargan Test

27.35***
62.34 (0.0000) 13.56 (0.3486)

Serial Correlation Test 16.03 (0.655) 21.56 (0.4537)

Regarding the generalized moment method (GMM), the Sargan test implies that the GMM

(two-step) is retained and the GMM (one-step) is rejected. The last days of sales outstanding is
significant and positively affects the current one. This reflects that Tunisian managers do not follow
stable trade credit policies. Besides, the constant term is always significant and positive which reveals
the incapacity of the companies included in the sample to reduce their days of sales outstanding and to
eliminate totally the opportunism generated. Regarding to the formal governance mechanisms,
significant negative relationships were found between contracts and opportunism. This result lends
support to the first hypothesis and corroborates transaction cost theory. Contract has a control effect
for partners involved in a buyer-supplier relationship and facing intensifying competition due to the
export uncertainty. Thus, Tunisian export companies need to adjust their corporate strategies to

4.89 ***

t- student in parenthesis z-value in parenthesis

Governance Mechanisms and Buyer Supplier Relationship: Static and Dynamic Panel Data
Evidence from Tunisian Exporting SMEs

respond to changes in the foreign environment. Similarly, social contact as a relational governance
mechanism exerts a significant and negative effect on days of sales outstanding. This result supports
the second hypothesis and demonstrates the social exchange theory’s relevance in explicating the
buyer supplier governance. A high level of social contact is related with an important production of
private information and an atmosphere of trust. Thus, rich mutual information exchanges between the
foreign customer and the Tunisian buyer could increase the latter’s capacity to react rapidly to
eventual changes.

Once trust is established, the customers may be reluctant to behave opportunistically by
delaying reimbursement. Overall, transactional and relational governance mechanisms are efficient
tools for restraining opportunism in a supply chain. Thus, this finding supports that the formal and
informal governance systems function as complements. This complementarity is harmonious with the
economic sociology view. In fact, when economic actions are implanted in social structure, relational
and transactional governance mechanisms reciprocally remedy each other’s insufficiency. More
precisely, transactional mechanisms offer an institutional support for relational mechanisms, whereas
relational mechanisms provide incentives for performing transactional mechanisms. Thus, additional
advantages are induced by a suitable arrangement between contractual and relational governance
mechanisms. Besides, relational governance mechanisms emerge if there are guarantees that each
party behaves in the interest of the other.

Turning to the debt ratio, the statistically significant coefficient suggests that the financial
condition of the seller has negative effect on the number of days granted to its customer. More
precisely, when the supplier has a large leverage, he limits the customers’ opportunism by restricting
the number of days of sales outstanding in order to collect liquidity quickly. Finally, the size is
negatively correlated to the dependant variable as explained for the fixed effect model.

To further test the relative importance of transactional and relational governance mechanisms
on opportunism, the semi- partial correlation is performed.

Table 3: Semi-partial correlation

Days of Sales Outstanding

Part correlation Square part correlation

Transactional governance mechanisms

 Contract

 Transaction specific investment

Relational governance mechanisms

 Social contract

 Turnover

-0.306 0.094
-0.111 0.012

-0.487 0.237
-0.209 0.044

As reported in table 3, the sum of the contribution of contracts and transaction-specific

investments to anti-opportunism equals to 0.106 (0.094+0.012). Similarly, the contribution of
relational governance mechanisms to anti-opportunism equals to 0.281 (0.237+0.044). Therefore, the
effect of relational governance mechanisms on opportunism is stronger than that of transactional
governance mechanisms. The third hypothesis of the analysis is supported. Trust habitually occurs
when the buyer supplier relationship is sustained for long. Currently, Tunisia is characterized by an
economic and social transformation and export Tunisian companies still use primary business habits in
managing informally relationships with their partners. However, cultural divergence and foreign
challenges give incites to Tunisian export companies to effectively manage channel relationships on
the basis of transactional mechanisms.

5. Conclusion

The main objective of this paper was the study of transactional and relational governance
mechanisms effects’ on opportunism induced through the buyer and the supplier partnership. As
companies look for more advantages to face competitive environment, the improvement of the

International Journal of Economics and Financial Issues, Vol. 1, No. 3, 2011, pp.88-98

relationship between buyers and suppliers is progressively more vital. Besides, trade practices in
emerging economies are mainly marked by inter-firm relationships and necessitate a critical
development. Superior relationships between the buyer and the supplier allow companies to grow in a
dynamic marketplace and to generate considerable returns for the two parties. Nevertheless, buyer–
supplier dyads imply opportunism and conflict. Thus, governing such relationships on the basis of
formal and informal mechanisms is a crucial task for managers to improve the exchange process.
Through the analysis of 386 companies, over a six-year period from 2003 to 2008, the transactional
governance mechanisms (contracts) and relational governance mechanisms (social contact) appear
both important in curtailing opportunism of the foreign customer. This work confirms that the two
governance mechanisms are complementary. However, relational aspects have more significant effect
on opportunism than the contracting process. In managerial terms, there is evidence that transactional
governance mechanisms are crucial but not sufficient to curtain opportunistic behavior in the foreign
market. Another lesson learned from this paper, is relevant to buyer supplier operations in emerging
and developing economies. As many of these economies, like Tunisia, have exchange relationships
with foreign customers. Thus, the issue of managing these ties is important to both academics and
practitioners. Finally, the paper shows that the exchange relationship between the two parties does not
always operate the way that the conventional view expects it. In Tunisia, relational ties used to be seen
as more effective than contracts. In this study, contracts are found to apply a significant effect on
limiting opportunism.

In the light of these findings, this study has provided a road map of promising avenues for
further research on other emerging markets. However, there is much work left. For example, future
investigation may introduce other governance mechanisms such as communication effectiveness and
goal congruence. Besides, the study can be duplicated in other contexts in both developed Western
markets and emerging markets to highlight knowledge about international relationship channels. In
fact, the contingency effects of the buyer and the seller preferences may vary with cultural and
economic environments.

References
Arellano M. & Bond S. (1991), Some Test of specification of Panel Data: Monte Carlo Evidence and

an Application to Employment Equations. Review of Economic Studies, 58: 277-297.
Bellouma M. (2011), The Impact of Working Capital Management on Profitability: The Case of Small

and Medium- Sized Export Companies in Tunisia. Management International, forthcoming.
Bellouma M. Bennaceur S. & Omri, A. (2009), The impact of lending relationship on risk premium

and credit availability: evidence from Tunisia. Afro-Asian Journal of Finance and Accounting,
1, (3):235-250.

Berger, A., & Udell, G., F. (2002), Small Business Credit Availability and Relationship Lending: The
Importance of Bank Organisational Structure, Economic Journal, 95:319-325.

Benton, W.C. & Maloni M. (2005), The influence of power driven buyer/seller relationships on supply
chain satisfaction. Journal of Operations Management, 23 (1):1–18

Bernheim B.D. & Whinston M.D. (1998), Incomplete contracts and strategic ambiguity. American
Economic Review, 88 (4): 902–932.

Biais B. & Gollier C. (1997), Trade Credit and Credit Rationing. Review of Financial Studies,10: 903-
937.

Bougheas S. Simona M. and Mizen. P. (2009), Corporate trade credit and inventories: New evidence
of a trade-off from accounts payable and receivable. Journal of Banking and Finance, 33:300–
307.

Child J. Tse & D.K. (2001), China’s transition and its implication for international business. Journal
of International Business Studies 32 (1): 5–21.

Deloof M. (2003), Does working capital management affect profitability of Belgian firms? Journal of
Business Finance and Accounting,(30):573-587.

Di Tommasso M.R. & Rubini L. (2001), Support to SMEs in the Arab region: the case of Tunisia.
United NIDO.

Dyer J. & Chu W. (2003), The role of trustworthiness in reducing transaction costs and improving
performance: empirical evidence from the United States, Japan, and Korea. Organization
Science, 14 (1):57–68.

Governance Mechanisms and Buyer Supplier Relationship: Static and Dynamic Panel Data
Evidence from Tunisian Exporting SMEs

Grossman S. & Hart O. (1980), Takeover Bids, the Free-Rider Problem and the Theory of the
Corporation. Bell Journal of Economic,11:42–64.

Hausman J.A. (1978), Specification Tests in Econometrics. Econometrica, 46:1251-1271.
Heide, J.B. (1994), Interorganizational governance in marketing channels. Journal of Marketing 58

(1):71–85.
Hines, P. (1994), Creating World Class Suppliers: Unlocking Mutual Competitive Advantage,

London, Pitman.
Holmlund M. & Kock S. (1996), Buyer Dominated Relationships in a Supply Chain: A Case Study of

Four Small-Sized Suppliers. International Small Business Journal, 15(1):26-40.
Hsiao C. (1986), Analysis of Panel Data. Cambridge University Press.
Jain N. (2001), Monitoring Costs and Trade Credit. The Quarterly Review of Economics and Finance,

41:89-110.
Jap, S.D. & Anderson E. (2003), Safeguarding interorganizational performanceand continuity under ex

post opportunism. Management Science 49 (12):1684–1701.
Jeffries F.L. & Reed R. (2000), Trust and adaptation in relational contracting. Academy of

Management Review, 25 (4):873–882.
John, G., (1984). An empirical investigation of some antecedents of opportunism in a marketing

channel. Journal of Marketing Research 21 (3): 278–289.
Kim K. (2000), On interfirm power, channel climate, and solidarity in industrial distributor–supplier

dyads. Academy of Marketing Science, 28 (3):388–405.
Kotabe M. Martin X. & Domoto H. (2003), Gaining from vertical partnerships: knowledge transfer,

relationship duration, and supplier performance improvement in the U.S. and Japanese
automotive industries. Strategic Management Journal, 24 (4): 293–316.

Lazaridis I. & Tryfonidis D. (2006), Relationship between working capital management and
profitability of listed companies in the Athens stock exchange. Journal of Financial
Management and Analysis, 19: 26-35.

Levinthal D.A. & Fichman, M. (1988), Dynamics of interorganizational attachment: auditor–client
relationships. Administrative Science Quarterly, 33 (3): 345–369.

Liu Y. Yuan L. & Zhang L. (2010), Control mechanisms across a buyer-supplier relationship quality
matrix, Journal of Business Research, 63:3-12.

Lohtia R. Brooks C.M. & Krapfel R.E. (1994), What constitutes a transaction- specific assets? An
examination of the dimensions and types. Journal of Business Research, 30 (3): 261–270.

Luo Y. (2002), Contract, cooperation, and performance in international joint ventures. Strategic
Management Journal, 23 (10) : 903–920.

Luo Y. (2007), An integrated anti-opportunism system in international exchange. Journal of
International Business Studies 38 (6), 855–877.

Mian .L. & Smith Jr. C.W. (1992), Accounts receivable management policy: theory and evidence,
Journal of Finance, 47 (1): 169-200.

Morrissey W. J. (2006), Buyer-Supplier Relationships in Small Firms: The Use of Social Factors to
Manage Relationships. International Small Business Journal, 24, (3):272-298

Morrissey B. & Pittaway L. (2004), A Study of Procurement Behavior in Small Firms. Journal of
Small Business and Enterprise Development, 11(2): 254-262.

Paul S. (2007), Trade credit: a taste of things to come, credit management. Journal of the Institute of
Credit Management, 34:38-41.

Paul S. & Wilson N. (2007). The determinants of trade credit demand: survey evidence and empirical
analysis. Journal of Accounting, Business and Management, 14: 96-116.

Paulraj A. Lado, A.A. & Chen I.J. (2008), Inter-organizational communication as a relational
competency: antecedents and performance outcomes in collaborative buyer–supplier
relationships. Journal of Operations Management, 26 (1): 45–61.

Petersen M.A. & Rajan R.G.(1997), Trade credit: theories and evidence. Review of Financial Studies,
10 (3): 661-691.

Poppo L. Zenger T.(2002), Do formal contracts and relational governance function as substitutes or
complements? Strategic Management Journal, 23 (8): 707–725.

Saunders M. (1997), Strategic Purchasing and Supply Chain Management, London, Pitman.

International Journal of Economics and Financial Issues, Vol. 1, No. 3, 2011, pp.88-98

Seabright M.A. Levinthal D.A. & Fichman M. (1992), Role of individual attachments in the
dissolution of interorganizational relationships. Academy of Management Journal, 35 (1): 122–
150.

Schmitz J. M. (1995), Understanding the Persuasion Process between Industrial Buyers and Sellers.
Industrial Marketing Management, 24(2): 83-90

Uyar A. (2009), The Relationship of cash conversion cycle with firm size and profitability: An
empirical investigation in Turkey. International Research Journal of Finance and Economics,
24:186- 193.

Williamson O.E. (1983), Credible commitments: using hostages to support exchange. American
Economic Review 73 (4): 519–540.

Williamson O.E. (1985), The Economic Institutions of Capitalism. Free Press, New York.
Williamson O.E. (1999), Strategy research: governance and competence perspectives. Strategic

Management Journal, 20 (12):1087–1168.