Does Information Technology Usage Substitute or Complement Formal Control in Digital Platform Relationships? (CEIBS Working Paper, No. 016/2020/MAN, 2020)

Regarding information technology usage as an alternative control mechanism, this study attempts to investigate the role of information technology usage, formal contracts, and their interaction on platform participants firms’ financial performance in a digital platform relationship setting. Using data collected from 384 platform participant-platform builder relationships from China’s two largest digital product platforms, hierarchical regression is used to investigate the direct effects of formal contracts and information technology usage as well as the moderating effects of technology on formal contracts-financial performance link. The results show that contract completeness and information technology usage can independently improve financial performance, while contract enforcement has an inverted U-shape effect on financial performance. Furthermore, information technology usage amplifies the positive effect of contract completeness but not of contract enforcement on financial performance. This study advances the literature in partnership control by revealing the role of information technology usage as a control mechanism. Simultaneously, this study enriches the research on technology by offering an integrated perspective concerning how technology benefits business partnerships. Finally, this study extends transaction cost theory by demonstrating that different dimensions of contracts have different effects on governing interfirm exchange relationships.