Environmental and Firm Level Influences on Inter-Organizational Trust and SME Performance

Abstract

We investigate the effects of focal firm knowledge intensity and uncertainty on inter-organizational trust and subsequent performance of small and medium size enterprises (SMEs). We integrate the trust literature with transaction cost literature as both these offer partial explanations of the dynamics of inter-organizational trust in the context of a SME. We propose that knowledge intensity of the focal firm will have a positive relationship while uncertainty will have a negative relationship with inter-organizational trust in an exchange relationship. Further, we propose a positive relationship between trust and SME performance, which will be contingent on the level of external and internal uncertainty faced by the focal firm. Empirical evidence, based on the survey data of 565 German SMEs mostly supports our arguments.