Trust in Islamic Business-to-Business Relationships: Evidence from Indonesia

Abstract

We explore the role of trust in Islamic culture in business to business relationship by exploring the link between bank managers’ trust in business customers and their financing decision. In line with our expectations based on the fact that Islamic culture is characterized by a collectivistic approach, weak rule of law, and clan-based social structure, we find that value-based trust is more important than competence-based trust. Moreover, we find that these results are amplified in the case of small organizations. These results support the argument that business relationships in Islamic culture ground more on principles, values, norms that a partner bring into the relationship than in its business skills. Our results are robust to endogeneity and multilevel issues.