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Trust As a Means of Improving Corporate Governance and Efficiency

Author

Listed:
  • Ralph Chami
  • Connel Fullenkamp

Abstract

Agency problems within the firm are a significant hindrance to efficiency. We propose trust between coworkers as a superior alternative to the standard tools used to mitigate agency problems: increased monitoring and incentive-based pay. We show how trust induces employees to work harder, relative to those at firms that use the standard tools. In addition, we show that employees at trusting firms have higher job satisfaction, and that these firms enjoy lower labor cost and higher profits. Finally, we show how trust may also be easier to use within the firm than the standard agency-mitigation tools.

Suggested Citation

  • Ralph Chami & Connel Fullenkamp, 2002. "Trust As a Means of Improving Corporate Governance and Efficiency," IMF Working Papers 02/33, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:02/33
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    References listed on IDEAS

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    Cited by:

    1. Vitaliy Zheka, 2006. "Corporate Governance and Firm Performance in Ukraine," CERT Discussion Papers 0605, Centre for Economic Reform and Transformation, Heriot Watt University.
    2. Daouda Sembene, 2007. "Give Trust a Chanceā€”A Model of Trust in the Context of an IMF-Supported Program," IMF Working Papers 07/42, International Monetary Fund.

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