The immunization effect of internal control system transparency following a supplier’s violation of buyer trust

54 Pages Posted: 18 Aug 2017 Last revised: 30 Aug 2023

See all articles by Anna Cianci

Anna Cianci

Wake Forest University

Bernhard Erich Reichert

Virginia Commonwealth University

Karen Sedatole

Goizueta Business School

George T. Tsakumis

University of Delaware - Alfred Lerner College of Business and Economics

Date Written: August 30, 2023

Abstract

In this study, we show that a supplier’s internal controls (IC) that lead to either falling short of or to exceeding buyer expectations play an important role in the trust a buyer has in its supplier. In a 12-round repeated trust game, we examine the impact of supplier ICs and the transparency of those ICs to the buyer on buyer trusting behavior across three phases of the buyer-supplier relationship: (1) trust formation, (2) trust violation, and (3) trust repair. We find that, while a supplier’s trust violation reduces buyer trusting behavior, the least amount of damage to trusting behavior occurs for suppliers whose ICs led to supplier actions that fell marginally short of buyer expectations prior to the violation and when the IC was transparent to the buyer. We refer to this as the IC transparency “immunization effect.” Our study shows that suppliers can benefit from making control system choices known to partners.

Keywords: internal controls, buyer-supplier relationship, control systems, cooperation, trust, transparency, immunization effect

JEL Classification: C91, D91, M41

Suggested Citation

Cianci, Anna and Reichert, Bernhard Erich and Sedatole, Karen and Tsakumis, George T., The immunization effect of internal control system transparency following a supplier’s violation of buyer trust (August 30, 2023). Available at SSRN: https://ssrn.com/abstract=3022154 or http://dx.doi.org/10.2139/ssrn.3022154

Anna Cianci

Wake Forest University ( email )

2601 Wake Forest Road
Winston-Salem, NC 27109
United States

Bernhard Erich Reichert

Virginia Commonwealth University ( email )

Richmond, VA
United States

Karen Sedatole (Contact Author)

Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

George T. Tsakumis

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
174
Abstract Views
1,993
Rank
311,080
PlumX Metrics