How Business-to-Business Agreements are Governed : Letting the Data Speak

Overview & Synopsis

The mechanisms that ensure promises are fulfilled lie at the heart of economic systems. For businesses, promises, whether based on informal handshakes or lengthy contracts, are crucial for reliable access to inputs. Yet comprehensive cross-country evidence on how agreements are enforced remains scant. This Brief fills this gap by drawing on data on the combinations of mechanisms firms use to manage supplier agreements - so-called transactional governance structures (TGSs) - from more than 17,000 firms across 13 countries. Five distinct and meaningful types of TGSs emerge from the data. Cross-country patterns confirm strong association between the rule of law and rms’ governance of supplier agreements. Strikingly, within-country variation in TGSs is substantial and can rival cross-country variations, pointing to transactional governance as an overlooked factor in uneven regional development. Firm-level evidence suggests that institutional environments matter most for newer firms and less-experienced managers, with broader implications for productivity and economic development.