particular sectors (Bernstein 2001), but not important generally in those sectors. Our test is too low-power to reflect such niche relationships.

# **V.4 Sectors**

As the statistical tests in Tables 4a and 4b show, governance classes do vary significantly between sectors.<sup>31</sup> Figures 5a and 5b illustrate this variation, which is substantial. For example, the use of bilateralism varies from 74% when food processors interact with their suppliers to 24% in the sales of construction companies. One conjecture on this difference immediately follows from Williamson's emphasis on frequency: the more frequent are exchanges, the easier it is to construct purely bilateral governance. In their sales, construction companies use governance structures that employ private, paid, dispute resolution and the legal system. This is consistent with Williamson's emphasis on more complex governance when exchange is infrequent and involves idiosyncratic interactions (Williamson 1985).

# **V.5 Management Practices**

The effects of firms’ management practices are an important avenue of investigation currently in economics (Bloom et al. 2012, Bloom et al. 2013). To quantify the role of management practices, Bloom and Van Reenen (2007, 2010), in coordination with the US Census Bureau, developed a set of survey questions, which the World Bank’s Enterprise Analysis Unit modified and implemented as part of the standard WBES.<sup>32</sup> We examine the association between the responses to these questions and the governance structures chosen by firms. Figures 6a and 6b illustrate this association. As firms’ management practices improve, the prevalence of pure bilateralism falls (from 76% to 54% on the suppliers’ side and from 72% to 41% on the customers’ side), indicating that the improvement in internal management practices is accompanied by the use of more complex methods of governance of external relations.

# **V.6 Miscellaneous Firm Characteristics**

We follow the WBES indicators in calling firms "foreign owned" if they are at least 10% owned by foreign private entities. Similarly, we call firms "exporters" if at least 10% of their total sales are in foreign markets. As Tables 4a and 4b indicate, the associations between these measures and the choice of governance structures are weak. But the direction of association is intuitive, as illustrated in Figures 7 and 8. Foreign-owned firms and exporters use pure bilateralism less than firms that are domestically owned and oriented.

> <sup>31</sup> The WBES contains four-digit ISIC Rev.3.1 information on the main product and activity of each establishment. We used two-digit codes and grouped sectors as follows: Food (codes 15,16), Textiles and Garments (17,18,19), Wood and Wood Products (20-22, 36), Chemicals, Plastics, Non-metallic Mineral Products (24-26), Metals (27, 28), Machinery and Equipment (29, 31-35), Construction (45), Retail, Wholesale, Tourism (50-52, 55, 63), Transport (60-62), Telecom and IT (64, 72).

> <sup>32</sup> The original survey instrument implemented by the Census is known as the Management and Organizational Practices Survey (MOPS). Subsequent surveys building on these instruments include the World Management Survey (WMS), both with origins in the Management, Organisation and Innovation (MOI), involving the European Bank for Reconstruction and Development (EBRD).

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