The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/0969-9988.htm Response of contractor behavior to hierarchical governance: effects on the performance of mega-projects Response of contractor behavior Hang Yin College of Management and Economics, Tianjin University, Tianjin, China Dan Wang School of Public Policy and Administration, Chongqing University, Chongqing, China Yilin Yin Received 30 January 2020 Revised 14 July 2020 17 December 2020 5 February 2021 Accepted 27 March 2021 School of Management, Tianjin University of Technology, Tianjin, China Henry Liu School of Design and the Built Environment, University of Canberra, Canberra, Australia, and Binchao Deng School of Management, Tianjin University of Technology, Tianjin, China Abstract Purpose – This study aims to examine the impacts of formal and informal hierarchical governances (HGs) on the performance of mega-projects and the mediating role of contractor behavior (i.e. perfunctory and consummate behaviors) in these relationships. Design/methodology/approach – A total of 375 valid data entries from managers representing 375 megaprojects were analyzed through path analysis. Findings – Both formal and informal HGs exert positive effects on the performance of mega-projects. While formal HG positively affects contractor perfunctory behavior and contractor consummate behavior, informal HG affects contractor perfunctory behavior only. Contractor behavior mediates the relationship between formal HG and project performance. Research limitations/implications – The impacts of potential moderators (e.g. institutional arrangement and complexity) on the relationship between HG and contractor behavior have not been considered in this study. Practical implications – This study is useful for owners to enhance formal HG to improve contractor perfunctory and consummate behaviors, which in turn can enhance the performance of mega-projects. Originality/value – This study expands the knowledge of mega-project performance management from the perspective of HG. It also contributes to the literature of contractor behavior within the context of megaprojects. Keywords Hierarchical governance, Contractor behavior, General contractor, Mega-project, Performance Paper type Research paper Introduction Mega-projects account for approximately 8% of global GDP (Laing and Connor, 2020). Due to their complexity, uncertainty and multi-interface management, mega-projects [1] impose extensive difficulties and challenges on their owners (Flyvbjerg et al., 2003). Many cases reported that the owners’ poor management of project delivery was the main cause of the budget and schedule overruns of mega-projects (El-Sabek and McCabe, 2018). Thus, a general This research is funded by the National Natural Science Foundation of China (Project Numbers: 71472135, 71602144 and 71772136). Disclosure Statement: No potential conflict of interest is reported by the authors. Engineering, Construction and Architectural Management © Emerald Publishing Limited 0969-9988 DOI 10.1108/ECAM-01-2020-0073 ECAM contract mode with hierarchical governance (HG) has become attractive within the context of mega-projects (Wang et al., 2019a). The owners of mega-projects, for example, in China, normally appoint groups and their subsidiaries as general contractors and subcontractors, respectively. In such organizations, a stable hierarchy exists between general contractors and subcontractors (Yuan et al., 2019). Notably, there are two forms of HG: (1) formal HG, which depends on vertical integration of official positions and (2) informal HG relying on social relationships (Weber, 1980). Compared with the traditional contracting model, the hierarchy between general contractor and subcontractors (Figure 1) can enable instructions to be transmitted more efficiently (Li et al., 2018). The relationship between HG and project performance is controversial, although research indicates that HG can hinder the efficiency of information exchange in an organization (Reitzig and Maciejovsky, 2015; Chen, 2017). One perspective holds that a flat and horizontal management model is more efficient for task coordination and organizational control than vertical management in projects (Pilkien_e et al., 2018). However, HG has led to many successful mega-projects, such as the Beijing–Shanghai High-Speed Rail and Hong Kong– Zhuhai–Macao Bridge (Qiu et al., 2019). Essentially, they have been considered critical to organizational performance (e.g. He and Huang, 2011; Brahm and Tarzijan, 2012; Bunderson et al., 2016). Therefore, it is important to explore the way by which HG influences the performance of mega-projects. As addressed above, the underlying dynamics leading to the impacts of formal and informal HGs on organizational performance vary (e.g. official control and social relationships). Thus, it is essential to identify how these two different HGs determine the performance of mega-projects. Contractor behavior refers to the behavior of the contractor during contract enforcement (between the owner and the contractor) (Hart, 2008), and it has been recognized as a determinant of project success. Transaction cost theory states that governance changes the behavioral choices of both parties in the transaction (Williamson, 1971). Williamson (1991) further identified that HG reduces the transaction costs of the organization by decreasing the uncertainty of behavior. Notably, formal HG constrains organizational behavior mainly through a control system (e.g. rewards/penalties and personnel arrangements), thereby improving individual efforts to drive project success (Sihag and Rijsdijk, 2019). By contrast, Hierarchical governance Owner General contractor Group Subcontractor 1 Subsidiary A Hierarchy Subcontractor 2 Subsidiary B Subcontractor 3 Subsidiary C Figure 1. General contract mode with HG Contract Hierarchy Hierarchical governance informal HG can contribute to coordinating individual and/or group interactions, which lead to key stakeholders’ engagement with the goals of the organizations (He and Huang, 2011). Therefore, contractor behavior can build a bridge between the HG and project performance. Against the contextual backdrop above, this study aims to develop an integrative model to examine how HG affects the performance of mega-projects. It also seeks to differentiate the influence of formal and informal HGs on a mega-project’s performance, and the mediating role contractor behavior plays in these relationships. Literature review and hypothesis development Hierarchical governance in construction projects HG is the process by which an authorized decision-maker commands others to engage in various activities within a certain range (Weber, 1980). While formal HG is an official system supported by a top-down command and control of the organization, informal HG is underpinned by social norms and interaction between dominating and dominated parties, for example, values, cultural background and unofficial communication (Diefenbach and Sillince, 2011). In construction projects, HG is described as the governance that the groups (general contractors) implement on their subsidiaries (subcontractors). Formal and informal management practices relate to the cost, schedule and safety of construction projects (Castillo et al., 2018). Formal HG comprises such mechanisms as strategic, financial and personnel controls (Chang and Hong, 2000; Liao, 2005; White et al., 2008). Groups can strengthen their risk response capabilities in projects by improving financial performance through formal HG (Wang et al., 2020b). The partner organization of a project can improve the efficiency and agility of relevant management through a consistent strategic layout, that is, formal HG (Hoffmann et al., 2020). In contrast, informal HG comprises social interdependence (Noorderhaven and Harzing, 2009). High interdependence between groups and their subsidiaries will achieve synergies by sharing their values, intelligence and technology (White et al., 2008). As a result, group interdependence from synergy effects enables significant cost savings and risk sharing for subsidiaries in terms of construction activities. Hierarchical governance and mega-project performance Formal HG is recognized as a stable organizational management model. Yun et al. (2015) argued that an authoritative hierarchical relationship within an organization and clear instructions from its managers are fundamental for project control. To deal with external risks and achieve expected project performance, maintaining the stability of the management structure within the organization is critical (Levander et al., 2011; Yun et al., 2020). In this stance, the following hypothesis is proposed: H1a. Formal HG correlates positively with mega-project performance. One determinant of project performance is the subcontractors’ obedience to the general contractor based on unified social norms, values and cultural background (i.e. informal HG) (Sedita and Apa, 2015; Liu et al., 2017). Differences in values and cultural norms between participants may create conflicts between them, thereby potentially resulting in the failure of the project (Liu et al., 2017). Based on a case study, Nguyen and Watanabe (2017) also identified the importance of informal HG in determining project performance. Therefore, another hypothesis is derived as follows: H1b. Informal HG correlates positively with mega-project performance. Response of contractor behavior ECAM Contractor behavior in construction projects Drawing upon transaction cost theory, Yan et al. (2018) defined that there are two types of contractor behavior in construction projects, involving (1) contractor perfunctory behavior (CPB) and (2) contractor consummate behavior (CCB). CPB refers to the contractor’s verifiable and remunerative actions specified in the contract. It includes four main components: (1) correctly performing the contractual obligations, (2) fully completing the work within the contract, (3) achieving the construction targets agreed in the contract and (4) performing construction according to the construction drawings and specifications (Anvuur and Kumaraswamy, 2011; Xu et al., 2018). The CCB describes the contractor’s proactive actions to execute the contract in the spirit of mutual trust and cooperation, including (1) controlling risks, (2) making up for loopholes in the contract and (3) acting as an altruistic party (Liu et al., 2019; Yan et al., 2018). The classification of contractor behavior above is similar to the distinction between in-role and extra-role behaviors. Put simply, CCB significantly relates to extra-role or organizational citizenship behaviors (Wang et al., 2018), which are referred to as the informal and voluntary behavior where a party is willing to carry out extra activities and assist the other party to deal with the task-related problems (Zhang et al., 2018). However, rewards for such voluntary behavior are not contractually guaranteed (Braun et al., 2013). A plethora of studies have been undertaken to investigate the influences of contract governance and institutional support on contractor behavior and performance of traditional projects (Ke et al., 2015; Zheng et al., 2019). Owing to unpredictable contractor behavior in mega-projects, the existing arguments regarding the relationship between governance and behavior for traditional projects are invalid in mega-projects (Park et al., 2017). Although extant research has emphasized the importance of effective organizational systems for guiding and encouraging contractor behavior in the project governance of mega-projects, the relationship between HG and contractor behavior is ambiguous (Lim et al., 2011; Jiang et al., 2017). Hierarchical governance and contractor behavior Given the different roles of formal and informal mechanisms in managing mega-projects, the influence of the two types of HG (i.e. formal HG and informal HG) on the different forms of contractor behavior may be different (Benıtez-Avila et al., 2018). Formal HG incentivizes contractors to exhibit contractor behavior; it is based on inequality in member power or status. Zhang et al. (2018) pointed out that power is the determinant of interorganizational relations and has a great influence on contractor behavior. Because general contractors are dominant in the HG system, they can control subcontractors’ CPB through punishments, such as unfair financial distribution as well as restrictions on executive promotion (Xu et al., 2018). Furthermore, given the power difference between general contractors and subcontractors in the long-term arrangement of mega-projects, subcontractors must strictly commit to general contractors (i.e. groups) (Wang et al., 2017). The commitments include not only CPB but also those not specified in the contract, that is, CCB (Shiu et al., 2014). This perspective has led to the following hypothesis: H2. Formal HG correlates positively with CPB (2a) and CCB (2b). Informal HG breeds group norms and common values, which can enhance contractor behavior. An organization with an efficient informal HG will benefit from a unified goal and value system (He and Huang, 2011). Specifically, once common values and guidelines are established within the organization, the general contractor is more likely to exhibit CPB. Zhang et al. (2016) further claimed that the shared values and continuous social interaction in an organization tend to reinforce the subcontractors’ perception of affective commitment to the organization. Put simply, subcontractors who perceive that they are parts of the organization are more likely to make additional efforts. Hence, the following relevant hypothesis can be made: H3. Informal HG correlates positively with CPB (3a) and CCB (3b). Contractor behavior and project performance The contract terms serve as the standard for the two parties to perform. The contract not only describes the work, powers and obligations of both parties but also sets out the goals of project performance and remuneration methods (Schepker et al., 2014). As CPB guarantees the effective execution of the contract, the contract’s requirements regarding project performance (e.g. project duration, investment and quality) can be realized (Zhang et al., 2016). Additionally, CCB is characterized as altruism, which manifests as proactive risk control and compensation for flaws in the contracts, increasing the possibility of achieving the expected performance (Yan et al., 2018). Xia et al. (2018) maintained that the use of risk-management strategies and technology to internalize project risks is a foundation to achieve predetermined outputs and prevent the risk of being confronted by the owner. Thus, a hypothesis can be made as follows: H4. CPB (4a) and CCB (4b) correlate positively with mega-project performance. Mediating role of contractor behavior Foss and Weber (2015) argued that HG improves organizational performance by enhancing members’ behavior and work efficiency. Based on hypotheses H2–H4, this study proposes that contractor behavior mediates the relationship between HG and the performance of mega-projects. CPB reflects the owner’s interests and code of conduct in the contract (Zhang et al., 2019). This ensures that formal HG within the contractor organization allows project performance to more closely meet the expectations of the owner (Liu et al., 2019). When the general contractor determines what actions are acceptable to the owner, the code of conduct constructed by the general contractor and subcontractors through informal control will be closer to the owner’s desires. Considering this view, the following hypothesis can be derived: H5. CPB mediates the relationship between HG (formal HG, H5a; informal HG, H5b) and mega-project performance. An empirical study by Wan et al. (2020) supports the idea that paternalistic leadership with a clear hierarchy is an effective style in managing large projects as it can enhance team cohesion and facilitate voluntary behaviors. The voluntary rationalization advice that is provided by contractors concerning the improvement of design defects can reduce construction costs (Liu et al., 2019). As discussed above, HG can encourage subcontractors to be more proactive in communicating, cooperating and reciprocating with the general contractor, in turn allowing contractors to better deal with external risks promptly, which is necessary for the development of the project. Therefore, this study proposes the following hypothesis: H6. CCB mediates the relationship between HG (formal HG, H6a; informal HG, H6b) and mega-project performance. Based on the hypotheses proposed above, a conceptual model can be developed (see Figure 2). This illustrates the influence of formal and informal HGs on the performance of mega-projects as well as the mediating roles of CPB and CCB within these relationships. Response of contractor behavior H1a ECAM Mediation: H5a/H5b Formal hierarchical governance H2a H2b Contractor perfunctory behavior H4a Mega-project performance H3a Informal hierarchical governance Figure 2. Proposed model H3b H1b Contractor consummate behavior H4b Mediation: H6a/H6b Methodology Participants and procedures The survey for this study was conducted following a four-stage process: (1) identify and select cases from the top 4 construction groups in China (ENR, 2017) and the Mega Project Case Study and Data Center (China) (MPCSC, 2018); (2) generate mega-project list based on the identified cases; (3) contact project managers (owners and general contractors) for their consent to participate and (4) invite managers to complete the questionnaires (Figure 3). The respondents engaged in the survey were asked to complete a questionnaire, which clearly indicated the purpose of this study in the first page to ensure the reliability of the responses. The respondents of the survey provided responses voluntarily and were assured of the confidentiality of their identities. In this survey, conducted between January 2018 and April 2020, a questionnaire was distributed to managers from a variety of projects (e.g. subway, highway, bridge and tunnel construction) across 26 cities (e.g. Beijing, Tianjin, Guangzhou and Shenzhen) in China. A total of 375 valid questionnaires representing 375 mega-projects were returned (response rate 5 25%). Respondents included owners, general contractors, all with more than five years of experience in their respective fields. Table 1 shows the demographic information of the respondents. Figure 3. Survey procedure Variable Category Project type Subway Highway Railway Bridge Other 1–10bn 10–20bn 20–30bn more than 30bn less than 2 years 2–5 years more than 5 years Project investment (CNY) Project duration Frequency % 154 50 74 32 65 81 183 76 35 36 249 90 41.1 13.3 19.7 8.5 17.3 21.6 48.8 20.3 9.3 9.6 66.4 24.0 Note(s): 1 USD ≈ 6.46 CNY Measures The scales used in this study are based on the well-established scales used by the extant literature in relevant fields. The items were translated into Chinese, and the descriptions were modified to fit the construction domain. Three experienced scholars were asked to check the accuracy of the constructs. To improve readability, 21 practitioners in the construction domain were invited to review the wording of the items. The measures are evaluated on a fivepoint Likert scale, ranging from 1 (strongly disagree) to 5 (strongly agree). Hierarchical governance (HG). HG was measured using two subscales (i.e. formal and informal HG). Formal HG was measured using a ten-item scale (Liao, 2005; White et al., 2008). An example item is “General contractor understands subcontractors’ strategy.” Informal HG was measured using a six-item scale (Noorderhaven and Harzing, 2009). A sample item is “General contractor and subcontractors often communicate informally.” Contractor behavior. Contractor behavior was measured using a nine-item scale, including four items for CPB and five items for CCB (Yan et al., 2018). Example items are “The contractor can carry out the construction according to the construction drawings and standard specifications provided by the owner” (CPB) and “The contractor will volunteer to make an extra effort for the project (such as active overtime when necessary)” (CCB). Mega-project performance. A six-item scale was used to assess the performance of megaprojects (Pinto et al., 2009). A sample item is “The project results, or deliverables, are in line with the client objectives.” Control variables – Control variables were used for this research, including previous cooperation, future business prospects, project type, project cost and project duration. The first two variables indicate whether the participants have experience in cooperating with other organizations and future business prospects (0 5 no, 1 5 yes). The remaining three are regarding the factors that have been acknowledged as being critical for the performance of mega projects (Schepker et al., 2014; Buvik and Rolfsen, 2015; You et al., 2018; Zheng et al., 2018), that is, project type (e.g. “1” means a subway), project cost (e.g. “1” stands for the project with the investment of 1bn to 10bn CNY) and project duration (e.g. “1” denotes the duration less than 2 years). Data analysis A two-stage analytic procedure (Anderson and Gerbing, 1988) was conducted to test the hypotheses using the software Mplus 7.1. First, confirmatory factor analysis (CFA) was performed to examine the robustness of the measurement model. Second, path analysis was Response of contractor behavior Table 1. Demographic information of respondents ECAM conducted to test the hypothesized relationships between the latent variables. The significance of the indirect effects was examined by the bootstrapping method with 1,000 bootstrap samples and a confidence interval (CI) of 95% (Shrout and Bolger, 2002). Empirical results and findings Preliminary analysis Table 2 presents the descriptive statistics, including means, standard deviations and intercorrelations of the studied variables. The Pearson correlation coefficients showed that formal HG correlates significantly with CPB (r 5 0.358, p < 0.001) and CCB (r 5 0.418, p < 0.001), while informal HG correlates significantly with CPB (r 5 0.419, p < 0.001) and CCB (r 5 0.201, p < 0.01). Both CPB (r 5 0.438, p < 0.001) and CCB (r 5 0.511, p < 0.001) correlate significantly with mega-project performance. Measurement model CFA was used to test measurement validity. Table 3 presents a comparison of the models. The five-factor model provided a generally good fit to the data (χ 2/df 5 1.426, CFI 5 0.974, TLI 5 0.971, RMSEA 5 0.034). It performed considerably better than the alternative four-factor model (χ 2/df 5 3.976, CFI 5 0.817, TLI 5 0.799, RMSEA 5 0.089), the three-factor model (χ 2/ df 5 7.788, CFI 5 0.575, TLI 5 0.542, RMSEA 5 0.135), and the two-factor model (χ 2/df 5 8.388, CFI 5 0.535, TLI 5 0.501, RMSEA 5 0.140), supporting the discriminant validity of the variables. The results indicate that fit indices were not adequate for the one-factor model (χ 2/df 5 10.108, CFI 5 0.426, TLI 5 0.385, RMSEA 5 0.156). To examine and exclude the common method variance (CMV), a common factor that was uncorrelated with the other factors was constructed, which is associated with same loadings (Podsakoff et al., 2003; Malhotra et al., 2006; Chang et al., 2010). The relatively small values of the mean difference in the correlation suggest that the impact of CMV on the relationships being observed in this study is insignificant. Table 4 reports Cronbach’s alpha, standardized factor loading (SFL), construct reliability (CR) and average variance extracted (AVE). Cronbach’s alpha values for the variables were all higher than the accepted threshold of 0.8 (Nunnally, 1978), suggesting good reliability. SFLs were greater than 0.7, AVEs were greater than 0.5 and CRs were greater than 0.7 (Hair, 1995). Thus, the convergence of the constructs is assured. The square root of the AVEs of all constructs was greater than the off-diagonal correlation coefficients (see Table 2), so the discriminate validity is acceptable (Fornell and Larcker, 1981). Hypothesis analysis The proposed hypotheses were examined using a two-step path analysis on a relatively simple initial model as well as on a final model. First, a path analysis was conducted on a Variable Mean SD 1 2 3 4 5 1. Formal HG 3.649 0.615 (0.790) (0.869) 2. Informal HG 3.544 0.880 0.301*** 0.419*** (0.797) 3. CPB 3.189 0.912 0.358*** *** 0.201** 0.203** (0.802) 4. CCB 3.754 0.828 0.418 *** *** 0.422 0.438*** 0.511*** (0.789) 5. Mega-project performance 3.594 0.784 0.528 Note(s): SD 5 standard deviation. The square roots of AVE are values in brackets. HG 5 hierarchical Table 2. *** Descriptive statistics of governance, CPB 5 contractor perfunctory behavior, CCB 5 contractor consummate behavior. p < 0.001, ** p < 0.01, two-tailed p-value, n 5 375 studied variables Model χ2 df χ 2/df CFI TLI RMSEA SRMR Five-factor model 597.383 419 1.426 0.974 0.971 0.034 0.039 Four-factor model (CPB and CCB as one 1,681.952 423 3.976 0.817 0.799 0.089 0.108 factor) Three-factor model (formal and informal 3356.654 431 7.788 0.575 0.542 0.135 0.146 HGs as one factor) Two-factor model (CPB, CCB and mega3632.053 433 8.388 0.535 0.501 0.140 0.132 project performance as one factor) One-factor model 4386.924 434 10.108 0.426 0.385 0.156 0.139 Note(s): χ 2 5 chi-square, df 5 degree of freedom, HG 5 hierarchical governance, CPB 5 contractor perfunctory behavior, CCB 5 contractor consummate behavior simpler model (HG, project performance and control variables). Figure 4 illustrates that both formal HG (β 5 0.445, p < 0.001) and informal HG (β 5 0.327, p < 0.001) have significantly positive effects on mega-project performance, supporting H1a and H1b. The final model, including all variables, fits well: χ 2 /df 5 1.436 < 3, CFI 5 0.964 > 0.9, TLI 5 0.961 > 0.9, RMSEA 5 0.034 < 0.08, SRMR 5 0.050 < 0.06. Figure 5 presents the direct path estimates for the partial mediation model. Formal HG has significantly positive direct effects on CPB (β 5 0.495, p < 0.01) and CCB (β 5 0.643, p < 0.001), supporting H2a and H2b. Informal HG has a significantly positive direct effect on CPB (β 5 0.442, p < 0.001) but not CCB (β 5 0.093, p > 0.05), which supports H3a but not H3b. Moreover, both CPB (β 5 0.158, p < 0.01) and CCB (β 5 0.275, p < 0.001) have significantly positive direct effects on megaproject performance, which supports H4a and H4b. The bootstrapping results (see Table 5) indicate that the indirect effects of formal HG on project performance via CPB (95% CI: lower bound 5 0.030; upper bound 5 0.186) and via CCB (95% CI: lower bound 5 0.079; upper bound 5 0.336) are both significant, thus providing evidence for their mediation of their respective relationships and supporting hypotheses H5a and H5b. The indirect effect of informal HG on project performance via CPB (95% CI: lower bound 5 0.026; upper bound 5 0.146) is significant, but that via CPB (95% CI: lower bound 5 0.014; upper bound 5 0.080) is not significant, which supports H6a but not H6b. Discussion This study develops and examines an integrated model of HG and the performance of megaprojects. HG has a positive effect on the performance of mega-projects. Moreover, two types of contractor behavior (i.e. CPB and CCB) mediate the relationship between HG and project performance. Theoretical implications This research empirically demonstrates the significance of HG in project organization and enables an understanding of how HG can lead to better performance of mega-projects. Compared with previous studies (e.g. Huang and Lien, 2012; Castillo et al., 2018), this study draws a distinction between formal and informal HG and demonstrates their positive influence on project performance. Formal HG has a greater impact on performance than informal HG. A reasonable explanation is that formal mechanisms usually have clear directions and goals, and informal mechanisms are often intangible and difficult to implement and maintain (Bygballe et al., 2018). Furthermore, this study enriches the research on the principal–agent relationship between general contractor and subcontractors by clarifying the relationship between HG-based general contractor and subcontractors and the effects of informal HG in project organization. Response of contractor behavior Table 3. Model comparison ECAM Variables SFL Formal HG Strategic control (Cronbach’s α 5 0.840; CR 5 0.841; AVE 5 0.639) SC1 The general contractor understands subcontractors’ strategy SC2 The general contractor understands subcontractors’ principal competitors SC3 The general contractor and subcontractors jointly develop strategic initiatives 0.797 0.768 0.832 Financial control (Cronbach’s α 5 0.858; CR 5 0.858; AVE 5 0.669) FC1 The general contractor will evaluate the sales of subcontractors FC2 The general contractor will assess the profit growth of subcontractors FC3 The general contractor will assess the rate of return on assets of subcontractors 0.795 0.817 0.841 Personnel control (Cronbach’s α 5 0.879; CR 5 0.879; AVE 5 0.645) PC1 The general contractor decides the appointment of the senior executives of the subcontractors PC2 The general contractor decides the promotion of the executives of the subcontractors PC3 Subcontractor executives will accept the performance appraisal of the general contractor PC4 Subcontractor executives will be bound by the general contractor’s reward and punishment mechanism Informal HG 0.805 0.813 0.812 0.783 Group interdependence (Cronbach’s α 5 0.853; CR 5 0.853; AVE 5 0.660) GI1 Subcontractors and the general contractor can share R&D resources GI2 Subcontractors and the general contractor can jointly conduct marketing scales and share advertising resources GI3 Subcontractors and the general contractor can jointly use market distribution channels 0.796 0.812 0.829 Social interaction (Cronbach’s α 5 0.868; CR 5 0.869; AVE 5 0.689) SI1 Subcontractor executives often participate in social activities organized by the general contractor SI2 Subcontractor executives often share the values of the general contractor SI3 The general contractor and subcontractors often communicate informally 0.769 0.884 0.833 Contractor perfunctory behavior (Cronbach’s α 5 0.874; CR 5 0.873; AVE 5 0.635) CPB1 The contractor can carry out the construction according to the construction drawings and standard specifications provided by the employer CPB2 The contractor can carry out the construction according to the contract requirements or agreement CPB3 The contractor can complete all the ancillary tasks required by the project CPB4 The contractor can complete the construction tasks stipulated in the contract or agreement Contractor consummate behavior (Cronbach’s α 5 0.900; CR 5 0.900; AVE 5 0.644) CCB1 The contractor will volunteer to make an extra effort for the project (such as active overtime when necessary) CCB2 The contractor will take the initiative to put forward reasonable proposals for the employer (such as the cost saving plan) CCB3 The contractor will help the relevant participants to adapt to the construction site CCB4 The contractor will voluntarily inform the employer of the drawings or the errors or omissions in the contract CCB5 The contractor will actively control and internalize project risks and reflow the risk back to the employer Table 4. Cronbach’s alpha, standardized factor loading, construct reliability and average variance extracted (AVE) Mega-project performance (Cronbach’s α 5 0.908; CR 5 0.908; AVE 5 0.623) PMP1 The project results, or deliverables, are in line with the client objectives PMP2 The project is within the budget PMP3 This project is on schedule PMP4 The construction and deliverables quality accord with the standard PMP5 The project passed the quality inspection PMP6 The participants of this project maintain good cooperation 0.832 0.880 0.723 0.741 0.780 0.835 0.793 0.813 0.791 0.776 0.789 0.804 0.802 0.804 0.758 Response of contractor behavior 0.445*** Formal hierarchical governance Mega-project performance Control variables PT (0.122**) Informal hierarchical governance PC (0.036, ns) PD (–0.048, ns) PCO (0.210***) 0.327*** FBP (0.127**) Note(s): *p < 0.05, **p < 0.01, ***p < 0.001, ns means p > 0.05, two-tailed P-value, n = 375, PT = project type, PC = project cost, PD = project duration, PCO = previous cooperation, FBP = future business prospects. Figure 4. Direct path estimates for the simpler model 0.408** Formal hierarchical governance 0.495** Contractor perfunctory behavior 0.643*** 0.275*** 0.442*** Informal hierarchical governance 0.093, ns 0.158** Mega-project performance Control variables PT (0.070**) Contractor consummate behavior PC (0.005, ns) PD (–0.020, ns) PCO (0.138***) FBP (0.052**) 0.238** Note(s): *p < 0.05, **p < 0.01, ***p < 0.001, ns means p > 0.05, two-tailed P-value, n = 375 Path Estimate Lower CI Upper CI Figure 5. Direct path estimates for the partial mediation model Hypothesis 0.030 0.186 H5a Formal HG → CPB → mega-project performance 0.078* 0.079 0.336 H5b Formal HG → CCB → mega-project performance 0.177** 0.026 0.146 H6a Informal HG → CPB → mega-project performance 0.070* Informal HG → CCB → mega-project performance 0.026, ns 0.014 0.080 H6b Note(s): **p < 0.01, *p < 0.05, two-tailed p-value, n 5 375. Bootstrapping 5 1,000 times, 95% confidence intervals [CI]). HG 5 hierarchical governance, CPB 5 contractor perfunctory behavior, CCB 5 contractor consummate behavior A contribution is also made to the performance management of mega-projects by providing evidence demonstrating how the pattern of HG affects mega-project performance via contractor behavior. The extant literature (e.g. Castillo et al., 2018; Sirisomboonsuk et al., 2018; Table 5. Results of indirect effects between variables ECAM Wang et al., 2019b) is replete with research into the impacts of governance and organizational characteristics on project performance. However, in this study, contractor behavior has been organized as an intermediary within the relationship between HG and mega-project performance. This has provided insight into managing the key stakeholders of mega-projects from a different perspective. Apart from the contributions above, this study confirms the different relationships between the two forms of HG and contractor behavior. The perspective that HG promotes the contractor’s perfunctory behavior but is insignificant for consummate behavior has been proven by the empirical evidence above. Our results echo the argument by Oedzes et al. (2019) that informal HG has a weaker relationship with contractor behavior. Informal HG between general contractors and subcontractors is vulnerable to external complexity (Brahm and Tarzijan, 2015; Kabiri and Hughes, 2018), which rarely stimulates interactions between contractors and owners. Practical implications Based on the empirical evidence, the owner of a mega-project is advised to choose a general contractor with a sound hierarchy to conduct construction management to ensure project performance. In the pre-qualification stage, the owner should check whether the general contractor has a clear and complete control system (i.e. strategic, financial and personnel control) to ensure a high level of formal HG. Furthermore, the owner should pay attention to the informal HG between the general contractor and their subcontractors. Put simply, it is essential for general contractors to improve the level of the HG with their subcontractors to enhance management efficiency in a mega-project. Notably, promoting formal and informal HGs in general contractors can enhance the contractor’s perfunctory and consummate behaviors. The owner should take measures to focus more on motivating CCB, as it has a stronger impact on the performance of megaprojects than CPB. Compared with CCB, CPB is observable and, therefore, assessment and control of CPB are more feasible; for example, these could consist of a clear definition of the contractor’s job duties/responsibility and an appropriate risk-sharing mechanism. Conclusions Building upon transaction cost theory, this study develops an integrated model of HG, contractor behavior and performance of mega-projects. Formal HG affects project performance both directly and indirectly through CPB and CCB, while informal HG affects project performance primarily via CPB. These findings enrich project governance research and expand the application of HG in mega-projects. This study also benefits project governance in which the owners of mega-projects choose general contractors and stimulate contractor behaviors. Despite these contributions, there are some limitations to this study. First, the survey was limited to the Chinese mega-project industry. Future research should be undertaken within a wider context. Second, this study neglects the moderating factors that may exist in the relationship between HG and project performance, such as institutional arrangement and organizational diversity. Therefore, exploring the potential influence of contractual arrangements, legal frameworks and cultural differences is promising. 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About the authors Hang Yin is a PhD candidate at the College of Management and Economics, Tianjin University, PR China. His research interests include mega-project, project governance and trust. His current research focuses on the intellectual structure and research front of trust in construction projects. Dan Wang is an assistant professor at the School of Public Policy and Administration, Chongqing University, PR China. Her research interests include project performance, public–private partnerships (PPPs), transport resilience and occupational health and safety. She has published papers in Q1 journals, such as Accident Analysis and Prevention, and Safety Science. Dan Wang is the corresponding author and can be contacted at: wangxiaodan@cqu.edu.cn Yilin Yin is a professor at the School of Management and head of the Institute of Public Projects and Cost Engineering at the Tianjin University of Technology, PR China. His research interests include project governance, public–private partnerships and trust. Henry Liu is an assistant professor at Building and Construction Management, University of Canberra, Australia. He holds a PhD in Civil Engineering, Master of Construction Management and Bachelor of Law. His research interests include public–private partnerships (PPPs), infrastructure asset management, performance measurement, construction production forecasting and transport resilience. He has published papers in Q1 journals, such as Production Planning and Control, Environment and Planning C: Politics and Space, ASCE Journal of Construction Engineering and Management, ASCE Journal of Management in Engineering, ASCE Journal of Infrastructure Systems, Transportation Research Part D: Transport and Environment, Cities and International Journal of Project Management. Binchao Deng is a lecturer at the School of Management at the Tianjin University of Technology, PR China. His research interests include public–private partnerships and project governance. For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: permissions@emeraldinsight.com Response of contractor behavior