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Trust in Transition: Cross-Country and Firm Evidence


  • Utku Teksoz


Using data from a large survey of firms across 26 transition economies, this article assesses the extent of trust in business relationships by measuring the level of prepayment demanded by suppliers, which we interpret as a measure of (dis)trust. We investigate a range of potential determinants of trust and find that trust among businesses is higher where confidence in third party enforcement through the legal system is higher. We also find that different types of business networks have a differential impact on the degree of trust between enterprises: networks based around family and friends help to build trust among firms, whereas networks based around enterprise insiders and government agencies appear to undermine trust. Our conclusion, based on the use of a unique multicountry enterprise data set, is that enterprises' room for maneuver in overcoming opportunism and distrust is much more limited by countrywide systemic factors than previously believed. ( JEL D23, D92, P26, P31, Z13) The Author 2007. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email:, Oxford University Press.

Suggested Citation

  • Utku Teksoz, 2008. "Trust in Transition: Cross-Country and Firm Evidence," Journal of Law, Economics, and Organization, Oxford University Press, vol. 24(2), pages 407-433, October.
  • Handle: RePEc:oup:jleorg:v:24:y:2008:i:2:p:407-433

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    References listed on IDEAS

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    Cited by:

    1. Jens Prüfer, 2016. "Business Associations and Private Ordering," Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(2), pages 306-358.
    2. Mateut, Simona, 2014. "Reverse trade credit or default risk? Explaining the use of prepayments by firms," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 303-326.
    3. Maria Litvinova & Maria Luigia Segnana, 2015. "Firm boundaries in Transition countries. The influence of technological and institutional links," DEM Working Papers 2015/05, Department of Economics and Management.
    4. 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.
    5. Simona Mateut, "undated". "Reverse trade credit - the use of prepayments by French firms," Discussion Papers 11/12, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    6. Gillanders, Robert & Neselevska, Olga, 2016. "Public Sector Corruption and Trust in the Private Sector," MPRA Paper 71020, University Library of Munich, Germany.
    7. Besnik A. Krasniqi & Sameeksha Desai, 2016. "Institutional drivers of high-growth firms: country-level evidence from 26 transition economies," Small Business Economics, Springer, vol. 47(4), pages 1075-1094, December.
    8. Svetlana Avdasheva & Nadezhda Goreyko, 2010. "Governance Structures in Russian manufacturing: assessment using sample survey data," UCL SSEES Economics and Business working paper series 112, UCL School of Slavonic and East European Studies (SSEES).
    9. Afandi, Elvin & Kermani, Majid, 2012. "The Relationship between Trust and a Firm’s Access to Financing: Evidence from Transitional Countries," MPRA Paper 46998, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy
    • P31 - 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


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