The use of ambiguous language in contract adjustment: An empirical study of its impact on interfirm relationship performance

Contract ambiguity is a prevalent phenomenon in interfirm governance, but it has not received sufficient academic attention. In this study, we seek to explore whether and how the use of ambiguous language in contract adjustment influences the focal firm's relationship performance. Using survey data from 207 firms and second-wave data from 62 firms, blended with 10 in-depth interviews with lawyers, we find that the effect of contract ambiguity on relationship performance depends on the attribution of the contract adjustment, characteristics of the adjusted contract, and the level of market development in which the focal dyad operates. Our findings reveal that when the adjusted duration and adjusted amount are at high levels, contract ambiguity is beneficial to relationship performance. In contrast, when contract adjustment is externally attributed and firms are situated in a more developed market environment, contract ambiguity will harm relationship performance. Our study enriches the literature on contract learning and interfirm relationship governance and provides guidance to managers in contract adjustment practice.