The joint-liability mechanism: controlling opportunism through peer monitoring among Chinese supplier groups

Purpose - Grounded in agency and clan theories, this study aims to examine how, when and why joint liability works as a control mechanism to reduce opportunism among tea supplier groups in China. Design/methodology/approach - Survey data from 82 supplier groups (three respondents per group) were collected. Findings - Joint liability is related positively to peer monitoring (as mediator) and negatively to opportunism, whereas the mediated relationship is moderated positively by group leaders' perceived legitimate authority and negatively by reciprocity and shared norms. Social implications - Opportunism is operationalized as the use of illegal pesticides, the violation of manufacturer-supplier contractual agreements and joint liability, as suppliers' liability of having the whole group's seasonal production is rejected by the manufacturer if a single act of opportunism is detected in the group. Originality/value - Our study demonstrates how and under what conditions the joint-liability mechanism is linked with the reduction of multi-suppliers' opportunism. We pave the way for future applications of the control mechanism to fields related to inter-organizational governance. Most importantly, we apply Ouchi's clan theory (1979, 1980) to conceptualize manufacturer-supplier and supplier-supplier relationships in China and provide first-hand evidence to validate its applicability and generalizability to the context. The study also offers insights on network influences in inter-organizational relationships (Gu et al., 2010; Wathne and Heide, 2004) and confirms the important roles of network factors in inter-organizational relationships. In particular, peer monitoring operates as a mediator and normative factors operate as facilitators (moderators) for the joint liability to work as a mechanism to control opportunism in this relationship context.