IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/48430.html
   My bibliography  Save this paper

Do Trust-Based Relations Improve Firm’s Performance? Evidence from Transition Economies

Author

Listed:
  • Berulava, George

Abstract

The purpose of this paper is to analyze the impact of trust-based relations on firm’s performance in transition economies. The trade credit variable is used as a proxy of trust-based relations and the propensity score matching method is employed to establish casual link between relational governance and business performance in the study. The research is conducted using data from a large survey of firms across 28 transition economies. The results of the study suggest that informal trust-based institutions of contract governance represent an important way for enhancing of business performance. To say distinctly, our findings indicate that in transition economies trade credits positively affect firms’ sales growth. They provide incentives for more intensive innovation activities and ensure higher labor productivity rates. The firms that trust their partners are characterized by larger proportions of reinvested profits as well. The main contribution of this paper is that it provides new empirical insights into the casual link between trust-based relations and business performance of firms in transition economies.

Suggested Citation

  • Berulava, George, 2013. "Do Trust-Based Relations Improve Firm’s Performance? Evidence from Transition Economies," MPRA Paper 48430, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:48430
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/48430/1/MPRA_paper_48430.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/49373/1/MPRA_paper_49373.pdf
    File Function: revised version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/49363/1/MPRA_paper_49363.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships and Informal Credit in Vietnam," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1285-1320.
    2. Kevin Zheng Zhou & Laura Poppo & Zhilin Yang, 2008. "Relational ties or customized contracts? An examination of alternative governance choices in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(3), pages 526-534, April.
    3. Sascha O. Becker & Marco Caliendo, 2007. "Sensitivity analysis for average treatment effects," Stata Journal, StataCorp LP, vol. 7(1), pages 71-83, February.
    4. Berulava George & Lezhava David, 2007. "The impact of trust on the mode of transaction governance between manufacturer and distributor," EERC Working Paper Series 07-05e, EERC Research Network, Russia and CIS.
    5. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo.
    6. Steer, Liesbet & Sen, Kunal, 2010. "Formal and Informal Institutions in a Transition Economy: The Case of Vietnam," World Development, Elsevier, vol. 38(11), pages 1603-1615, November.
    7. Jeffrey H. Dyer, 1996. "Does Governance Matter? Keiretsu Alliances and Asset Specificity as Sources of Japanese Competitive Advantage," Organization Science, INFORMS, vol. 7(6), pages 649-666, December.
    8. Kathryn Hendley & Peter Murrell & Randi Ryterman, 2000. "Law, Relationships and Private Enforcement: Transactional Strategies of Russian Enterprises," Europe-Asia Studies, Taylor & Francis Journals, vol. 52(4), pages 627-656.
    9. World Bank, 2002. "Transition, The First Ten Years : Analysis and Lessons for Eastern Europe and the Former Soviet Union," World Bank Publications - Books, The World Bank Group, number 14042, December.
    10. Carlin Wendy & Schaffer Mark & Seabright Paul, 2004. "A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-45, September.
    11. Martin Raiser & Alan Rousso & Franklin Steves, 2004. "Trust in Transition: Cross-country and Firm Evidence," Others 0401007, University Library of Munich, Germany.
    12. Jeffrey H. Dyer & Wujin Chu, 2003. "The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical Evidence from the United States, Japan, and Korea," Organization Science, INFORMS, vol. 14(1), pages 57-68, February.
    13. repec:umd:umdeco:murrelllaw is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Papastamatelou Julie & Busch Rainer & Ötken Begüm & Okan Elif Y. & Gassemi Karim, 2016. "Effects of Network Capabilities on Firm Performance across Cultures," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 49(1), pages 79-105, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Berulava George & Lezhava David, 2007. "The impact of trust on the mode of transaction governance between manufacturer and distributor," EERC Working Paper Series 07-05e, EERC Research Network, Russia and CIS.
    2. Beckmann, Volker & Boger, Silke, 2004. "Courts and contract enforcement in transition agriculture: theory and evidence from Poland," Agricultural Economics, Blackwell, vol. 31(2-3), pages 251-263, December.
    3. Francis,David C. & Karalashvili,Nona & Murrell,Peter, 2022. "Transactional Governance Structures : New Cross-Country Data and an Application tothe Effect of Uncertainty," Policy Research Working Paper Series 10118, The World Bank.
    4. Francis, John & Mukherji, Ananda & Mukherji, Jyotsna, 2009. "Examining relational and resource influences on the performance of border region SMEs," International Business Review, Elsevier, vol. 18(4), pages 331-343, August.
    5. Pyle, William, 2006. "Resolutions, recoveries and relationships: The evolution of payment disputes in Central and Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 34(2), pages 317-337, June.
    6. Aparicio, Sebastian & Urbano, David & Audretsch, David, 2016. "Institutional factors, opportunity entrepreneurship and economic growth: Panel data evidence," Technological Forecasting and Social Change, Elsevier, vol. 102(C), pages 45-61.
    7. Sonin, Konstantin, 2003. "Why the rich may favor poor protection of property rights," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 715-731, December.
    8. Aidis, Ruta & Estrin, Saul & Mickiewicz, Tomasz, 2008. "Institutions and entrepreneurship development in Russia: A comparative perspective," Journal of Business Venturing, Elsevier, vol. 23(6), pages 656-672, November.
    9. Beckmann, Volker & Boger, Silke, 2003. "Courts And Contract Enforcement In Agricultural Transition - Theory And Evidence From Poland," 2003 Annual meeting, July 27-30, Montreal, Canada 22213, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Méon, Pierre-Guillaume & Sekkat, Khalid, 2015. "The formal and informal institutional framework of capital accumulation," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 754-771.
    11. Recanatini, Francesca & Ryterman, Randi, 2001. "Disorganization or self-organization : the emergence of business associations in a transition economy," Policy Research Working Paper Series 2539, The World Bank.
    12. Hui Zhang & Huanhuan Xiong & Jianxin Xu, 2022. "Dynamic Simulation Research on the Effect of Governance Mechanism on Value Co-Creation of Blockchain Industry Ecosystem," Sustainability, MDPI, vol. 14(12), pages 1-18, June.
    13. Kornai, János & Maskin, Eric & Roland, Gérard, 2022. "A puha költségvetési korlát - II [The soft budget constraint II]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 94-132.
    14. Dries, Liesbeth & Swinnen, Johan F.M., 2005. "The Impact of Vertical Coordination on Supplier Access to Finance and Investments: Evidence from the Polish Dairy Sector," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24540, European Association of Agricultural Economists.
    15. Haggard, Stephan & Noland, Marcus, 2016. "Hard Target: Sanctions, Inducements, and the Case of North Korea," MPRA Paper 105812, University Library of Munich, Germany.
    16. Stephan Haggard & Marcus Noland, 2012. "The Microeconomics of North--South Korean Cross-border Integration," International Economic Journal, Taylor & Francis Journals, vol. 26(3), pages 407-430, September.
    17. James R. Dewald & Jeremy Hall & James J. Chrisman & Franz W. Kellermanns, 2007. "The Governance Paradox: Preferences of Small Vulnerable Firms in the Homebuilding Industry," Entrepreneurship Theory and Practice, , vol. 31(2), pages 279-297, March.
    18. Boris Bauke & Thorsten Semrau & Zheng Han, 2016. "Relational trust and new ventures’ performance: the moderating impact of national-level institutional weakness," International Entrepreneurship and Management Journal, Springer, vol. 12(4), pages 1007-1024, December.
    19. Brown, J David & Earle, John S & Lup, Dana, 2005. "What Makes Small Firms Grow? Finance, Human Capital, Technical Assistance, and the Business Environment in Romania," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 33-70, October.
    20. Laura Poppo, 2010. "Strategy and Transaction Costs," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 21, Edward Elgar Publishing.

    More about this item

    Keywords

    Keywords: trust-based relations; trade credit; networks; propensity score matching; business performance; transition economies;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:48430. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.