ABSTRACT The Effects of Buyer-Supplier Asset Specificity andCorporate Governance on Firm Performance :Focusing on the Moderating Effects of Inter-FirmTrust and Commitment Hwang, Seong-GwuenDepartment of Culture and Technology ConvergenceGraduate School ofChangwon National UniversityThe purpose of our study is to present a better understanding of some effects of asset specificity and corporate governance structure in buyer-supplier relationships on firm performance. In our pursuing this objective, the moderating effects of inter-firm trust and commitment will be taken into consideration as well. First of all, we investigate the impacts of asset specificity asymmetry on firm performance, Asset specificity has been one of the most controversial concepts in the buyer-supplier relationship studies in the last few decades(Lumineau, et al. 2022). From a perspective of Transaction Cost Economics(TCE), it has been assumed that asset specificity in buyer-supplier alliances can cause partner’s opportunistic behavior since it cannot be easily redeployed by other relationships (Williamson 1985; Handley & Benton, 2012). On the other hand, Relational Exchange Theory(RET) argues that asset specificity discourages partner opportunism since credible commitment derived from one firm’s asset specificity can deter the other firm’s opportunism(Bensaou & Anderson, 1999). In combining these two oppositive views, we examine how asymmetry of asset specificity in buyer-supplier exchanges can lead to solid firm performance. In addition to asset specificity, we examine whether imbalanced governance structure in buyer-supplier relationships can take an effect in enhancing a firm’s profitability. It has been suggested in the previous studies that governance structure can be classified into two dominant mechanisms: contractual governance originated from TCE and relational governance proposed from RET (Cao & Lumineau, 2015). Contractual governance places great emphasis on the formalization of contract rules, which can protect a firm from opportunism. On the contrary, relational governance is heavily based on the relational norms built by the reciprocal trust and commitment between two firms by means of their repeated and long-term interactions(Liu, Lao & Liu, 2005). In applying these conflicting governance mechanisms to our study, we seek for some effects of governance power imbalance in inter-firm relationships. To proceed our study, we collected survey data from more than 170 buyer and supplier firms, which are all located in three industrial areas in Korea: Seoul and Gyeonggido, Busan and Gimhae, and Changwon, often called as Korean Rust Belt. The collected data have been statistically calculated and analyzed by Jamovi, and we tested our hypotheses iteratively to make sure the analytical and statistical certainty of our study. The key findings of our study are as follows. First, our results show that asset specificity asymmetry between buyers and suppliers can lead to certain positive effects on firm performance. It is noteworthy in our study that among diverse asset specificities such as human asset specificity, site asset specificity, and dedicated asset specificity, etc., only physical asset specificity shows significant positive effects on firm performance. This implies that machines, instruments, and equipments specially invested for specific exchanges bring a strong benefit to firm performance. This also reflects a recent trend of global supplier network chains. Domestic manufacturing process has been transferred from OEM to ODM since 1990s. With regard to firm performance, furthermore, physical asset specificity has positive effects on all the three subcategories of firm performance such as partnership, competitive, and economic performances.Second, governance structure imbalance between buyers and suppliers shows certain positive effects on firm performance. In our study, referent governance power shows significant positive effects on all the three subcategories of firm performance. It is very interesting to note that expert governance power takes positive effects only on the partnership of firm performance. On the contrary, coercive governance power has no effect on firm performance at all. This strongly indicates that imbalanced governance structure is controlled by the contractual governance mechanism in the earlier stage of inter-firm relationships, but in the later stage, the relational governance mechanism becomes dominant since it stimulates the development of relational norms between firms. This also accounts for exactly why coercive governance power does not take any positive effects on the long-term and repeated firm interactions. Finally, it is clear up in our study that there are no positive moderating effects of trust and commitment with regard to physical asset specificity. In the same vein, governance structure imbalance does not show any significant moderating effects of relational quality. More specifically, while coercive governance power takes negative moderating effects, referent and expert governance powers have some marginal positive effects of relational quality only on the partnership performance. This strongly suggests that the moderating effects of inter-firm trust and commitment are not applicable for asset specificity and corporate governance. In conclusion, our study makes a great contribution toward the debate of the literature on a variety of effects of asset specificity and corporate governance in buyer-supplier relationships. From both theoretical and empirical perspectives, we confirm the positive effects of asset specificity and corporate governance on firm performance. In addition, our study newly manifests that there are no significant moderating effects of inter-firm trust and commitment on physical asset specificity and governance structure.