Relational Signalling in Governance Mechanisms and Trust Building

Abstract

“Thick” trust is required for the exchange of tacit knowledge in inter-organizational innovation collaborations. Management accounting researchers suggest that when the governance mechanisms can provide sufficient mitigations to the relational risks, trusting relationship among the collaborating partners can be developed. However, the question that remained unanswered is why some collaborative relationships with proper governance structure do not lead to the establishment of trust. This study seeks to identify the relational signals in the formal governance mechanisms which could foster development of “thick” trust that is crucial for effective knowledge exchange. Based on resource-based view (RBV), transaction cost economics theory (TCE), and relational signalling theory, this study proposes a conceptual framework that identifies the relational signalling elements in formal governance mechanisms that could foster “thick” trust among partners. The study contributes to the literature by distinguishing specific elements from conventional formal governance mechanisms as relational signalling elements for effective development of trust among collaborating partners.