The Effects of Risk and Reward Sharing on Quality Performance

Purpose: Firms face critical challenges in managing product quality in a global supply chain. In many cases, these challenges could be regarded as an agency problem which is a result of the goal conflict between the supply chain members. To address such agency problem, the purpose of this paper is twofold: first, to explain how risk and reward sharing practices contribute to firms’ quality performance in the supply chain; and second, to identify the drivers of applying risk and reward sharing. Design/methodology/approach: The hypothesised model, based on agency theory, is empirically verified by original survey data of 200 Chinese manufacturing companies using the structural equations modelling approach in a context of product recall. Findings: Supplier involvement and task programmability are two significant antecedents of risk and reward sharing. Further, the paper shows that risk and reward sharing have a positive effect on quality performance, however, in terms of contribution to quality performance, risk sharing and reward sharing may be substitution practices. Practical implications: This research explains how managers could embrace better preparedness for risk and reward sharing in their supply chains. It is also suggested that although risk and reward sharing are seen as efficient means to improve quality performance, such practices should not be treated as a bundle. Originality/value: Building on supply partnership literature, this paper contributes to agency theory by providing a solution to the agency problem, i.e., risk and reward sharing and adding to the limited understanding of the antecedents of risk and reward sharing and examining the effects of risk and reward sharing on quality performance.