Trust and innovation: Evidence from CEOs' early-life experience

47 Pages Posted: 23 May 2021 Last revised: 25 Aug 2021

See all articles by Dongmin Kong

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology; School of Finance, Zhongnan University of Economics and Law

Ying Zhao

Xiamen University

Shasha Liu

School of Management, Jinan University

Date Written: May 18, 2021

Abstract

Using CEOs’ early-life experience during China’s Cultural Revolution (1966–1976) to distinguish the trust level of CEOs, we employ a difference-in-differences identification strategy to show that the CEO’s trust level exhibits significantly positive impacts on corporate innovation. We then use an alternative dataset from the survey of the Chinese Enterprise Survey System in 2000 to measure the trust at the firm level and subsequently achieve highly consistent findings. We further demonstrate that the substitution effect between informal and formal institutions also exists in relation to the impact of trust on innovation. Trust plays a more important role in promoting innovation when formal institutions are lacking. Overall, this study enriches our understanding on the effects of the CEO’s trust level on corporate innovation and provides a micro-level evaluation of China’s Cultural Revolution in the long run.

Keywords: informal institutions, CEO’s trust level, corporate innovation, social trust

Suggested Citation

Kong, Dongmin and Zhao, Ying and Liu, Shasha, Trust and innovation: Evidence from CEOs' early-life experience (May 18, 2021). Available at SSRN: https://ssrn.com/abstract=3849014 or http://dx.doi.org/10.2139/ssrn.3849014

Dongmin Kong (Contact Author)

Department of Finance, Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China

School of Finance, Zhongnan University of Economics and Law ( email )

Wuhan, Hubei 430073
China

Ying Zhao

Xiamen University ( email )

Xiamen, Fujian 361005
China

Shasha Liu

School of Management, Jinan University ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

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