THE CENTRAL ROLE OF CALCULUS-BASED TRUST AND RELATIONAL TRUST IN BANK-SMALL FIRM RELATIONSHIPS.

Abstract

We examine trust's central role in bank-small firm relationships. In doing so, we draw upon two trust perspectives which pervade the inter-organizational literature: calculus-based trust and relational trust. We draw connections between previous agency and sociological discussions on bank-small firm relationships and highlight the parallels between these approaches and the trust perspective employed here. We explore how strategy and banking practices influence both dimension of a customer's trust in their bank and how this trust is associated with a small business's likelihood to shop for an alternative bank and thus be a source of relational rents. The theoretical framework is empirically tested using data collected from a matched sample of 935 small business executives and bank managers that had direct responsibility for these accounts. The results suggest that the two trust dimensions exist at the interorganizational level within bank-small business relationships. Further, we found that a relational banking strategy and management continuity differentially affected the trust dimensions and that trust mediated the relationship between both relational strategy and management continuity on a small business customer's likelihood to shop for an alternative bank. Finally, we present implications for future research and practice.