Inter-firm trust in buyer-supplier relations: are knowledge spillovers and geographical proximity relevant?

Abstract

This paper empirically examines the impact of knowledge spillovers and geographical proximity on inter-firm trust in buyer–supplier relations. In particular, the effects of incoming knowledge spillovers from vertically related firms and firms’ appropriability problems are analyzed. The results suggest that there is a positive relationship between incoming knowledge spillovers from business partners and the level of inter-firm trust. Firms’ appropriability problems, however, lead to a decrease in inter-firm trust. Firms that cannot protect their technical knowledge have a greater perception of customer (supplier) opportunism. Furthermore, estimation results indicate that inter-firm trust between geographically close partners exceeds inter-firm trust between distant partners.