Is It Worth Trusting Your Manager?

39 Pages Posted: 26 Sep 2015 Last revised: 23 Mar 2016

See all articles by Elena Kulchina

Elena Kulchina

Duke University; Duke Innovation & Entrepreneurship Initiative

Date Written: January 1, 2016

Abstract

Recent work has emphasized that trust between parties may sustain relational governance, but we need further understanding and empirical evidence of the role of trust in principal-agent relationships. Our paper contributes to the literature by focusing on the asymmetry of trust between an owner and a manager, which may for example arise because owners and managers come from regions with different trust levels. We find that a firm does almost equally well when the owner and the managers come from regions with equal trust (equal trust) and when the owner comes from a region with higher trust (over-trust). However, firm performance is significantly lower when the owner comes from a region with lower trust than that of the manager (under-trust). Moreover, this negative effect is particularly strong when communication between an owner and a manager is more difficult and when the difference in trust is less evident up front.

Keywords: entrepreneurs, top managers, trust, firm performance

JEL Classification: M1, M13, F22, F23

Suggested Citation

Kulchina, Elena, Is It Worth Trusting Your Manager? (January 1, 2016). Available at SSRN: https://ssrn.com/abstract=2665260 or http://dx.doi.org/10.2139/ssrn.2665260

Elena Kulchina (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Duke Innovation & Entrepreneurship Initiative

215 Morris St., Suite 300
Durham, NC 27701
United States

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