Trust In Firms Research Articles

Corporate financial digitalization, internal governance, and social trust

Taking advantage of a comprehensive sample of China's A-share listed companies from 2012 to 2022, this research examines the relationship between Corporate financial digitalization and a society's trust in firms. We provide robust evidence that the level of financial digitalization is positively related to social trust. Moreover, we document that the positive relationship is more pronounced for firms with effective internal governance because it can mitigate conflicts of interests between insiders and outsiders. Our findings are robust to a battery of sensitivity tests. Overall, this research contributes to the fast-growing literature on financial digitalization and social trust as well as provides valuable practical implications for investors, managers, and policymakers.

Does the Confucianism in audit firms enhance the corporate ESG Disclosure?

This paper examines the role of Confucian culture characterized by traditional virtues such as benevolence, righteousness, propriety, wisdom, and trust in audit firms and corporate ESG disclosure. Using data from Chinese A-share listed companies from 2008 to 2021, we found that Confucian culture in audit firms significantly promotes the level of corporate ESG disclosure. We also tested the moderating effect of regional culture and corporate culture, and found that in regions with stronger merchant guild culture and higher levels of social trust, as well as in companies with a stronger culture of integrity and cooperation, the promotion effect of Confucian culture in audit firms on corporate ESG disclosure is more pronounced. Furthermore, we discovered that the closer the geographical distance between audit firms and client companies, the greater the positive impact of Confucian culture in audit firms on corporate ESG disclosure. Overall, this study reveals the modern value of Confucian traditional culture for the improvement of enterprises’ environmental friendly behaviors from the perspective of external audit, and highlighted the relevance of informal institutions in corporate governance.

Exploring Key Drivers of CEO Trust in Family and Non-Family Firms

Exploring Key Drivers of CEO Trust in Family and Non-Family Firms

How does world economic policy uncertainty influence the carbon dioxide emission reporting and performance? Study of Fortune Global 500 firms.

This study contributes significantly to the field by utilising the World Economic Policy Uncertainty (WEPU) Index, as devised by (Ahir in Nat Bureau Econ Res2022), to scrutinise its impact on carbon dioxide emission reporting and performance. Employing the generalised method of moments (GMM) on a substantial dataset of 604 Fortune Global 500 firms spanning from 2005 to 2020, our analysis reveals crucial insights. The research elucidates the dual influence of WEPU Index: a positive correlation with carbon dioxide emission reporting and a negative correlation aimed at mitigating adverse effects and promoting sustainable practices, thereby enhancing firm trust. Moreover, the findings shed light on how companies in emission-intensive industries tend to ramp up carbon dioxide emission reporting, potentially to bolster investor confidence, particularly during high WEPU Index periods. Furthermore, this study uncovers a compelling association between high emitters and lowered carbon dioxide emission performance, stemming from political and social pressures to integrate environmental considerations. Notably, this pressure intensifies during periods of increased WEPU Index. The empirical results presented in this study carry immediate practical implications. Specifically, they offer valuable insights for regulatory bodies and industry associations, guiding the development of enhanced environmental and social reporting regulations and guidelines, particularly concerning carbon emission reporting and performance.

Purpose wins? A study of purpose-profit orientations, stakeholder perceptions and trust in firms

PurposeThe research seeks to evaluate stakeholder perceptions of firms, the extent these assessments impact trust in firms and possible implications for sustainability communications.Design/methodology/approachThree studies were undertaken involving two experiments (n = 436, n = 393) and one survey (n = 217). Analyses of variance was used in all three studies and in studies 2 and 3—to test for possible mediators—each variable was tested using Hayes' PROCESS macro (Hayes, 2013) with bootstrapping of 5,000 samples.FindingsResults demonstrate significant favouring of sustainability-minded firms. Some differences between consumers and investors were found but also notable commonalities such as a general propensity to favour purpose-oriented firms and similar determinations of trust in firms.Practical implicationsFindings could support more effective sustainability communications and firm decisions regarding investments in purpose- and sustainability-oriented initiatives. The results may also support designs to pursue and promote designations (e.g. B Corp) that legitimize sustainability claims.Originality/valueThis research was unique in its evaluation of two stakeholder types in the same context. Further, it provides new insights into how a firm’s profit-purpose orientation affects stakeholder perceptions and assessments of trustworthiness.

A deep learning-based SEM-ANN analysis of the impact of AI-based audit services on client trust

PurposeThe advent of technology has propelled audit firms to incorporate AI-based audit services, bringing the relationship between audit clients and firms into sharper focus. Nonetheless, the understanding of how AI-based audit services affect this relationship remains sparse. This study strives to probe how an audit client's satisfaction with AI-based audit services influences their trust in audit firms. Identifying the variables affecting this trust, the research aspires to gain a deeper comprehension of the implications of AI-based audit services on the auditor-client relationship, ultimately aiming to boost client satisfaction and cultivate trust.Design/methodology/approachA conceptual framework has been devised, grounded in the client-company relationship model, to delineate the relationship between perceived quality, perceived value, attitude and satisfaction with AI-based audit services and their subsequent impact on trust in audit firms. The research entailed an empirical investigation employing Facebook ads, gathering 288 valid responses for evaluation. The structural equation method, utilized in conjunction with SPSS and Amos statistical applications, verified the reliability and overarching structure of the scales employed to measure these elements. A hybrid multi-analytical technique of structural equation modeling and artificial neural networks (SEM-ANN) was deployed to empirically validate the collated data.FindingsThe research unveiled a significant and positive relationship between perceived value and client satisfaction, trust and attitude towards AI-based audit services, along with the link between perceived quality and client satisfaction. The findings suggest that a favorable attitude and perceived quality of AI-based audit services could enhance satisfaction, subsequently augmenting perceived value and client trust. By focusing on the delivery of superior-quality services that fulfill clients' value expectations, firms may amplify client satisfaction and trust.Research limitations/implicationsFurther inquiries are required to appraise the influence of advanced technology adoption within audit firms on client trust-building mechanisms. Moreover, an understanding of why the impact of perceived quality on perceived value proves ineffectual in the context of audit client trust-building warrants further exploration. In interpreting the findings of this study, one should consider the inherent limitations of the empirical analysis, inclusive of the utilization of Facebook ads as a data-gathering tool.Practical implicationsThe research yielded insightful theoretical and practical implications that can bolster audit clients' trust in audit firms amid technological advancements within the audit landscape. The results imply that audit firms should contemplate implementing trust-building mechanisms by creating value and influencing clients' stance towards AI-based audit services to establish trust, particularly when vying with competing firms. As technological evolutions impinge on trustworthiness, audit firms must prioritize clients' perceived value and satisfaction.Originality/valueTo the researcher's best knowledge, no previous study has scrutinized the impact of satisfaction with AI-based audit services on cultivating audit client trust in audit firms, in contrast to past research that has focused on the auditors' trust in the audit client. To bridge these gaps, this study employs a comprehensive and integrative theoretical model.

Unveiling green synergies: sustainable performance through human resource management, CSR, and corporate image under a mediated moderation framework.

In the twenty-first century, the surge in natural resource consumption and climate change has necessitated stringent measures to ensure ecological integrity and corporate sustainability. Organizations are increasingly adopting green practices, including green human resource management (HRM), green corporate social responsibility (CSR), and the promotion of green firms' image. These strategies are central to fostering sustainable performance and responsible environmental stewardship. These constructs have also elevated consumers' satisfaction and trust in firms' ecological practices. This study employs a quantitative research approach and utilizes convenient sampling methods to explore the ecosystem within the hospitality sector of China. A survey was conducted among middle- and senior-level managers working in top 3-, 4-, and 5-star hotels. The study results demonstrate that green notions are the key to a corporate's sustainable performance. The study reveals that firms' eco-friendly motive ensures the greening of the hotel industry due to their eco-friendly motive. Therefore, companies should be responsible for the environment. They should ensure the implementation of green sustainable practices toward achieving corporate performance.

The Effect of Sustainability Orientation on CRM Adoption

As research stresses the relevance of sustainability orientation and the necessity of viewing it as a key source of organizations’ competitive advantage, interest in it from a number of academic fields is growing and gaining ground. Furthermore, organizations are under tremendous pressure to be more socially responsible and environmentally sustainable while staying customer-focused. This has resulted in the development of the practice of customer relationship management (CRM) towards sustainability, which considers social, economic, and environmental implications while developing fruitful, long-term customer relationships. The main goal of this study was to determine whether there is a relationship between individuals’ sustainability beliefs and their intention to use CRM systems (intention) and commitment to organizations that provide CRM systems (commitment). It is proposed that sustainability orientation indirectly predicts two outcome constructs, intention and commitment, through two mediators, namely, attitude towards using CRM systems and trust in firms providing such systems. The data were collected from Australia using an online survey panel with a total of 303 completed responses. The results showed that the hypothesized relationships between sustainability orientation and attitude towards using CRM systems and trust in the firms providing CRM systems were all significant and in the proposed direction. Attitude and trust were found to significantly affect intention to adopt CRM systems and commitment to the firms that provide such systems, confirming the hypothesized mediation role of attitude and trust. Furthermore, this mediation was partial since there were significant and direct relationships between sustainability orientation and the two outcome constructs, intention and commitment.

Mediation effect of trust on willingness to pay for health insurance among co-operative members in Tanzania

This study analysed co-operative members’ willingness to pay (WTP) for health insurance. The social capital theory was adopted to analyse the mediation role of trust issues on other variables determining co-operative members’ WTP for health insurance. A single Contingent Valuation Method (CVM) was used to elicit and estimate the amount co-operative members that were willing to pay for health insurance. The Partial Least Square Structural Equation Modelling (PLS-SEM) was used to analyse variables affecting co-operative members’ WTP for health insurance. Findings indicated that most co-operative members were willing to pay for health insurance. Further, except for price, trust issues fully and partially mediate quality attributes and access criteria, respectively, when it comes to WTP for health insurance. Firm trust is required among co-operators, management, health insurers, and health facilities in order to increase WTP for health insurance among co-operative members.

Trust and Reciprocity in Firms’ Capacity Sharing

Problem definition: We study the use of nonmonetary incentives based on reciprocity to facilitate capacity sharing between two service providers that have limited and substitutable service capacity. Academic/practical relevance: We propose a parsimonious game theory framework, in which two firms dynamically choose whether to accept each other’s customers without the capability to perfectly monitor each other’s capacity utilization state. Methodology: We solve the continuous-time imperfect-monitoring game by focusing on a class of public strategy, in which firms’ real-time capacity-sharing decision depends on an intuitive and easy-to-implement accounting device, namely the current net number of transferred customers. We refer to such an equilibrium as a trading-favors equilibrium. We characterize the condition in which capacity sharing takes place in such an equilibrium. Results: We find that some degree of efficiency loss (as compared with a central planner’s solution) is necessary to induce reciprocity. The efficiency loss is small when the two firms have similar traffic intensity even if they are different in service-capacity scale, whereas the efficiency loss can be considerably large when the two firms have significantly different traffic intensities. The trading-favors mechanism, surprisingly, can outperform the perfect-monitoring benchmark when the two firms exhibit high asymmetry in terms of service-capacity scale or traffic intensity because the smaller firm tends to deviate from collaboration. Managerial implications: Firms should consider engaging in nonmonetary reciprocal capacity sharing if regulations, transaction costs, or other market and operational frictions make it difficult to use a capacity-sharing contract based on monetary payments. The trading-favors collaboration can improve the firms’ payoff close to the centralized upper bound when the firms have similar traffic intensities. However, when their traffic intensities are highly different, firms are better off with a monetary-payment contract to induce more capacity sharing and are worse off investing in increasing their visibility to each other’s real-time available capacity, namely investing in perfect monitoring. Funding: X. Hu thanks Faculty of Business and Economics of the University of Hong Kong and R. Caldentey thanks the University of Chicago Booth School of Business for financial support. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.1203 .

Trust, Transparency, and Complexity

AbstractThis paper develops a theory that generates an equilibrium relationship between product complexity, transparency, and trust in firms. Complexity, transparency, and the evolution of trust are all endogenous, and equilibrium transparency is nonmonotonic. The least-trusted firms choose the lowest product complexity, remain opaque, and substitute ex ante third-party verification for information disclosure and trust. Firms with an intermediate level of trust choose an intermediate level of complexity and transparency through disclosure, with more trusted firms choosing greater complexity and lower transparency. The most-trusted firms choose maximum complexity while remaining opaque, eschewing both verification and disclosure.

A Family Member or a Professional Manager? The Role of Trust in the Choice of CEO in Family Firms

Using a sample of Chinese family firms from 2008–2015, we investigate the impact of trust on the choice of whether to hire a family member or a professional manager as CEO. We find that the presence of a professional CEO is negatively associated with a higher level of trust in family members. In contrast, it is positively associated with a higher level of trust in non‐family members. Our findings suggest that the trust mode in Chinese family firms is like the ‘differential mode of association’, which describes Fei's (1992) social structure of Chinese society. Moreover, a higher level of trust in family members is associated with native entrepreneurial activities, which strengthens the negative relationship between trust in family and the presence of a professional CEO. Furthermore, the role of trust in family firms’ appointment decisions is more pronounced in regions with relatively weak legal protection and firms with relatively poor governance. Our results hold when we control for endogeneity and after a series of robustness checks. This research links the governance of family firms to the informal institution of trust, enriching the literature on trust and family firm behaviours.

Trust and Reciprocity in Firms’ Capacity Sharing

Trust and Reciprocity in Firms’ Capacity Sharing

Is controlling shareholders' credit risk contagious to firms? — Evidence from China

This paper investigates the contagion effect through shareholdings and the mechanism through which credit risk spreads from controlling shareholders to firms in the Chinese market. We use data on the judicial freeze of controlling shareholders to measure their credit risk and measure firm credit risk by default probabilities estimated from the KMV model. The empirical results show that a higher credit risk of the controlling shareholder is significantly associated with a higher credit risk of the firm in subsequent quarters. The baseline results are robust to a series of robustness tests and are pronounced when applying different methodologies that address potential endogeneity issues. This paper reveals an expropriation channel through which troubled controlling shareholders interfere with firms' efficient running of the business and thus lead to higher firm credit risk. We also provide empirical evidence that lower trust in firms, which shows up as less trade credit and higher borrowing costs, is another possible mechanism through which credit risk spreads from the controlling shareholder to the firm. Finally, we find that the credit risk contagion effect from the controlling shareholder is more pronounced among firms without independent CEOs and non-state-owned enterprises.

Varieties of regulatory regimes and their effect on citizens’ trust in firms

ABSTRACT The regulation of market activity has been largely dominated by governmental command-and-control regulatory design (C&C), which was seen as the safest way to protect the public from potential harm by firms. In recent years, in an effort to move to more relaxed and less burdensome regulation, alternative regulatory tools have been developed, tools that rely on firms or other private actors in the various stages of regulation (self, or smart, regulation). Since these alternatives present a reduction in the extent to which the government regulates markets, they could have a negative impact on citizens’ trust in firms and willingness to use them, especially when it comes to new technologies that could pose a risk to users. Using two experimental surveys (n = 1,195), we examine the extent to which different regulatory designs affect citizens’ willingness to trust a firm in the field of financial technologies (Fintech). The results show that trust in the firm decreases with alternatives to traditional state regulation. However, when trust in the regulator is high, then trust in the regulated firm increases even when an altentaive to C&C is introduced and the regulator relies on pledges, suggesting that the path to relieving regulatory burden lies in increasing the trustworthiness of public regulators.

Real effects of social trust on firm performance during COVID-19.

This study uses a difference‐in‐differences estimation method to address potential endogeneity between corporate social responsibility (CSR) and firm performance using a natural experiment of COVID‐19, with a cross‐country sample of 80,454 firm‐quarter observations across 51 countries. We find that high‐CSR firms show better performance, raise more debt, and invest more during COVID‐19. The positive effect of CSR on firm performance is more pronounced in countries with better governance and among non‐ International Financial Reporting Standards adopters. Our findings suggest that when trust in firms and markets falls during an economic crisis, the trust established between a firm and its stakeholders via socially responsible behavior pays off.

Dynamics of the Social Capital in Increasing the Competitiveness of the Riau Malay Woven Fabric Pekanbaru

The interaction of group participation from the social capital activity of the Riau Malay woven fabric IKM business group in Pekanbaru is intertwined with group participation, which continues to form a strong network. This research uses a qualitative case study approach to analyze the dynamics of the role of social capital to increase the competitiveness of Riau Malay woven fabric SMEs in Pekanbaru. Data collection techniques using observation, interviews, and documentation. Purposive sampling was used in determining informants and triangulation technique used. The role of social capital in the Riau Malay Woven Fabric industry in Pekanbaru was found in the research results. It showed a strong social bonding because they had the same kinship and ethnic Malay Islam, so social interaction was formed on a sense of togetherness, empathy, and firm trust. The implications are contributing empirically and relevant theories to the development of social capital as a competitive strategy. Keywords: competitive advantage; social capital; innovation; craft industry

Students' motivation for rubric use in the EFL classroom assessment environment.

The effectiveness of a rubric depends on how it is enacted. Although students' efforts in rubric use vary, few studies have investigated the hidden motivations when rubrics are utilized for classroom assessment. This qualitative study attempts to categorize students' effort in rubric use and identify personal differences and contextual factors influencing the effort in the EFL classroom assessment environment. A total of 79 students at a Chinese university participated in the study. The data collected included their classroom oral presentation results and nine case study informants' retrospective interviews on their processes of rubric use. Focuses were drawn upon students' perceptions and practices of rubric use throughout the task process. Totally, three types of effort patterns emerged in light of students' self-ratings and descriptions of the use. The intense kind held firm trust in rubric utility and thus utilized the rubric to develop the targeted competence throughout the whole process. The medium type either selectively followed the rubric in optional phases of the process due to their judgments of the rubric and the task. The loose type was least responsive to the rubric since their actions seemed largely affected by their self-efficacy and prior experience. Results showed that students' effort in rubric use in classroom assessment was the outcome of cognitive appraisals of a rubric, students themselves, and a task. The study highlights trait motivation and task motivation in the effectiveness of rubric use in assessment practices. Implications on rubric employment and task design are drawn to tap students' motivation for rubric use to achieve assessment for learning.

A key success of innovation product and process development for Thai herbal medicine business

Recent studies found that the impact of shared mission has been significant on project success because a shared mission enables the members of the project to exchange significant data and information about the project which mainly influences the success of the project. However, the main objective of this research study is to evaluate the impact of shared project mission (SPM) on the IPPD product success of Thai herbal medicine firms. The mediating role of mutual trust, symmetric communication, and mutual influence has also been evaluated in this research paper to find the impact of SPM on IPPD product success. Descriptive statistics, structural equation modeling, KMO, and confirmatory analysis also being used in this research paper for data analysis and computation. The results of the tables and findings indicate that all hypotheses accepted. It means that the shared project mission has a significant relationship with the project success of the firms. At the same time, systematic communication, mutual influence, and trust all have a positive impact. Discussion of study results and findings, limitations, and future recommendations in the area of shared project mission, mutual trust in firms and IPPD product success are also provided in this research paper.

Individual Decisions and Public Trust: The PCAOB and KPMG

What might seem like a small ethical transgression by an individual can lead to a series of subsequent decisions, and result in serious fraud. This can not only impact the individuals involved and their organizations, but also erode public trust in firms and institutions. When Brian Sweet left a position with the Public Company Accounting Oversight Board (PCAOB), an organization that oversees the inspection of audits, and went to work for KPMG, one of the large accounting firms whose audits he had inspected, he took with him confidential information that he thought could prove useful in his new position. Sweet subsequently shared confidential information with his new employer, and over the next two years acquired additional confidential information through contacts at PCAOB. Debra Kaufmann, a KPMG audit partner, was faced with a decision about how to react when Sweet shared confidential information that she believed neither she nor KPMG should have.