The mediated effect of formal and informal control on governance forms

Abstract

The present paper employs the perspective of Transaction Cost Economics (TCE) to analyze the relevance of formal and informal controls in selecting the governance form. The evidence supports the influence of frequency, information sharing and relation-specific investments as a cause of control mechanisms, and the effect of these factors on the choice of the governance form, but there is no evidence about the combined interaction between these variables. The present work proposes that there is a mediation effect of formal and informal norms on the relationship between the TCE variables (frequency, information asymmetry and relation-specific investments) and the governance form. We applied Structural Equation Modelling to companies in the telecommunications sector in Spain. Our results confirm the opposite effect of formal and informal controls on the selection of governance forms and the mediation effect of these mechanisms of control on the selection of the governance form.