An empirical analysis of contracting by Chinese firms

Yifan HU, Larry D. QIU*

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)

7 Citations (Scopus)

Abstract

Why do firms use formal contracts or relational contracts with their business partners? The paper uses survey data based on a large number of Chinese firms to uncover some important factors for why and when formal contracts or relational contracts are used. This study identifies geographical location as an important factor in affecting Chinese firms' contracting decisions. We find that a firm is more likely to use formal contracts with its clients and suppliers if they are located in a city different from the firm's main business location. We also find that larger (smaller) firms tend to adopt formal (relational) contracts. However, while the number of clients has a negative impact on a firm's adoption of formal contracts with its clients, the number of suppliers has a positive impact on its adoption of formal contracts with the suppliers.

Original languageEnglish
Pages (from-to)423-431
Number of pages9
JournalChina Economic Review
Volume21
Issue number3
Early online date27 Mar 2010
DOIs
Publication statusPublished - Sep 2010
Externally publishedYes

Keywords

  • Chinese firms
  • Formal contracts
  • Location
  • Relational contracts

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