LAUSR

Abstract Manufacturers usually deploy specific investments to their customers in order to foster cooperation between them. However, manufacturers that implement specific investments are likely to incur potential opportunism from their customers. In this way, manufacturers need to protect their specific investments and curb customer's opportunism. Based on transaction cost economics, this study develops a moderated mediation model that includes customer integration, as a mediator between manufacturer's specific investments and customer's opportunism, and transformational leadership, as a moderator on the relationship between the mediator and customer's opportunism. To test the model, we collected data from 206 Chinese manufacturers. The results show first, manufacturer's specific investments have a positive direct effect, but a negative indirect effect through customer integration, on customer's opportunism. Second, transformational leadership strengthens the negative effect of customer integration on customer's opportunism. Third, transformational leadership enhances the negative indirect effect of manufacturer's specific investments on customer's opportunism. This study contributes to governance mechanism literature by employing customer integration as an effective governance mechanism and contributes to leadership literature by building a transformational leadership-governance mechanism link, involving transformational leadership to the area of operations management. Our findings also provide insightful guidelines for manufacturers to protect specific investments, thus solving the conflict in investing for benefits and opportunism.