Trust, Contractual Control and firm's Innovation: the Moderating role of Environment Dynamism

Using buyer-supplier relationship as the analytical setting, we examine the impact on firm's innovation of trust and contractual control, and their interaction, and whether these effects are moderated by environmental dynamism. Our analysis of 315 buyer-supplier relationships in China demonstrates that contractual control has an inverted U-shaped with firm innovation, and trust has a positive and linear relationship with firm innovation. And the same time, we find that both contractual control and trust are needed; however, firm's innovation is enhanced when one is at higher level and the other is at lower level. Finally, we find that the positively effect of trust on firm's innovation is further strengthened when environmental dynamism is higher.