Contractual provisions and supplier passive opportunism: the moderating role of virtual governance

Purpose Research on supply chain management that specifically addresses passive opportunism is limited. This paper aims to fill this gap by drawing on transaction cost economics to examine the effects of two crucial aspects of contractual governance (i.e. contractual control provisions and contractual coordination provisions) on the passive opportunism (i.e. contractual passive opportunism and responsive passive opportunism) of suppliers. Furthermore, this study uncovers virtual governance as a boundary condition that affects the effect of contractual provisions on passive opportunism. Design/methodology/approach Using survey data collected from 164 firms, this study employed ordinary least squares (OLS) regression to evaluate the proposed hypotheses. Findings This study finds that contractual control provisions mitigate contractual passive opportunism but increase responsive passive opportunism, while contractual coordination provisions effectively reduce responsive passive opportunism. Moreover, virtual governance exacerbates the negative relationship between contractual control provisions and contractual passive opportunism, and lessens the effect of contractual control provisions on responsive passive opportunism. However, virtual governance weakens the negative effects of contractual coordination provisions on responsive passive opportunism. Originality/value First, this study contributes to transaction cost economics and relationship governance literature by shedding light on how contractual governance can be effectively used to manage passive opportunism, an important yet under-investigated issue in buyer–supplier relationships. Second, it offers a more nuanced understanding of governance–opportunism relationship by highlighting the complex and multifaceted nature of both contractual governance and passive opportunism. Third, by introducing virtual governance as a boundary condition, this study contributes to a deeper understanding of the contingencies that influence the effectiveness of traditional governance mechanisms in digitally enabled supply chain relationships.