Social Capital, Reputation and Contract Design in Buyer-Supplier Networks Kiron Ravindran*, Anjana Susarla**, Vijay Gurbaxani*** {kiron.ravindran@ie.edu; anjanas@andrew.cmu.edu; vgurbaxa@uci.edu} *IE Business School, Madrid **Carnegie Mellon University ***University of California, Irvine January 2011 Abstract Prior research on inter-firm contracting has identified the ideal governance mode to be either Formal‟ or „Relational‟ governance modes. However, both streams of literature rely on stringent assumptions about the cost of breaching contractual obligations and the mechanism of enforcement. We propose an embeddedness-based governance logic by examining an inter-organizational network of exchange partners. The buyer-seller network acts as a conduit for market actors to exchange information about exchange opportunities as well as the actual services traded, providing a mechanism for community enforcement. A firm‟s social capital in the network could assuage concerns about opportunism whereby a firm can maintain a reputation for performance. A firm‟s position in the network also acts as a signal of its ability and quality to agents beyond the dyad. We analyze a large dataset of public information technology (IT) outsourcing announcements using multi-way cluster-robust and network auto-regression techniques. We examine the impact of firms‟ position in the inter-organizational network on an important contract design element, the duration of contracts. We find that a network position whereby a firm is associated with central trading partners is likely to predict longer contract duration. We find that this relationship holds even after controlling for a number of alternate causal explanations. Implications for practitioners and research are discussed. Keywords: Social Capital, Reputation, IT Outsourcing, Contract Design Acknowledgments: The authors thank Carter Butts, Corey Phelps, Sanjeev Dewan, Param Vir Singh, Anand Gopal, the review team for ICIS 2009 and the reviewers for INFORMS CIST 2009 for constructive comments; seminar participants at the UT Dallas, Tepper School at CMU, UC Irvine and IE Business School, Madrid; conference participants at INFORMS 2008, SCECR 2009, AMCIS 2009, PACIS 2009 and the 2009 Sunbelt Social Networks Conference for feedback and suggestions on earlier versions of this manuscript. An earlier version of this study was awarded the Microsoft Prize at the 2009 INSNA Sunbelt Conference.