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Relation-specific investment: Theoretical axioms vs Evidence from Russia

Author

Listed:
  • Svetlana V. Orekhova

    (Ural State University of Economics, Ekaterinburg, Russia)

  • Ivan A. Butakov

    (Ural State University of Economics, Ekaterinburg, Russia; OOO MMC-Steel, Verkhnyaya Pyshma, Sverdlovsk oblast, Russia)

Abstract

According to Oliver Williamson, parameters of transaction – its frequency and relation-specific investment – determine the type of resource management. Theoretically, the main reason for the creation and sustainable functioning of complex hierarchical structures is related to business success being dependent on relation-specific and idiosyncratic resources, as well as to the minimization of transaction costs caused by resource exchange. Presumably, the converse is also true: a group of enterprises will make relation-specific investments independently and acquire non-specific resources in the market. The paper tests this thesis using the case study of the Russian industrial holding OOO MMC-Steel. Property rights theory and incomplete contracts theory make up the theoretical framework of the study. We apply economic and statistical methods, as well as the methodology of input-output balance. Empirical evidence consists of data on economic performance of OOO MMC-Steel. Production resources allocation by the level of specificity was studied in two stages. First, we assessed the holding’s choice between specific and nonspecific investments in 2014–2021. Second, we monitored resource flows within the industrial group. The findings show that OOO MMC-Steel’s specific investments are rather heterogeneous. Internal resource flows can be described as conditionally specific and aimed to a greater extent at obtaining coordination effects. The proposed methodology makes it possible to further develop the resource strategy considering the issue of resource allocation efficiency.

Suggested Citation

  • Svetlana V. Orekhova & Ivan A. Butakov, 2022. "Relation-specific investment: Theoretical axioms vs Evidence from Russia," Upravlenets, Ural State University of Economics, vol. 13(6), pages 30-43, January.
    • Handle: RePEc:url:upravl:v:13:y:2022:i:6:p:30-43
    DOI: 10.29141/2218-5003-2022-13-6-3
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    References listed on IDEAS

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    More about this item

    Keywords

    enterprise assets; relation-specific investment; make-or-buy decision; resource allocation; holding; resources strategy; industrial group;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing

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