Integrating soft factors into the assessment of cooperative relationships between firms: accounting for reputation and ethical values Bernhard Hirsch 1 and Matthias Meyer 2 1. Institute for Management Accounting and Control, Bundeswehr University, Munich, Germany 2. Institute for Management Accounting and Control, Ku ¨ hne School of Logistics and Management, Hamburg University of Technology, Hamburg, Germany Alliances and other forms of cooperation between firms often promise great benefits, for example, by the exchange of knowledge or co-specialization of resources. At the same time, the necessary actions to realize these benefits can augment vulnerability to opportunistic behaviour of partners. In addition to formal contracts to mitigate the resulting behavioural uncertainties, often, mechanisms, such as reputation or ethical values, are suggested as important supplements. However, when it comes to assessment of a specific cooperation opportunity, it is difficult to account systematically for the economic consequences of these ‘softer factors’. Therefore, this paper aims to surpass mere financial analysis of chance and risk and to integrate systematically both reputation and ethical values into an economic assessment of cooperative relationships. For this purpose, we develop a theoretical framework that is based on a simple-decision model to account for reputation and ethical values of potential partners as drivers of behavioural uncertainty reduction. We also discuss how this framework can be used to assess cooperative relationships and illustrate these ideas with reference to the inter-organizational accounting practices of a large drugstore chain and its suppliers. Introduction Joint ventures, alliances and other forms of co- operation between firms have received an enormous amount of attention in the last decade (e.g. Goessling et al. 2005). In particular, they are considered both an efficient and a flexible way of organizing certain types of transactions. In addition to the economic benefits of cooperative relationships between firms, the literature also pinpoints the increased vulnerability and possible losses from opportunistic behaviours of partners. Recent inter- est in supply chain management (SCM) provides a good case for both views. On the one hand, costs can be reduced by optimizing the entire value chain (Dyer 1997, Mentzer et al. 2001). On the other, these cost reductions require disclosure of sensitive information such as cost or pricing data (Kaju¨ter & Kulmala 2005) or high relationship-specific investments (Williamson 1985, 1996a). Such an increased vulnerability poses no problems as long as all relevant partner actions can be r 2009 The Authors doi: 10.1111/j.1467-8608.2009.01580.x Journal compilation r 2009 Blackwell Publishing Ltd., 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA 81 Business Ethics: A European Review Volume 19 Number 1 January 2010