Business Ethics: A European Review, EarlyView.

We propose a construct, the Trust Triangle, that highlights three primary mechanisms that provide ex post accountability for opportunistic behavior and motivate ex ante trust in economic relationships. The mechanisms are a society’s legal and regulatory framework, market-based discipline and reputational capital, and culture, including individual ethics and social norms. The Trust Triangle provides a framework to conceptualize the relationships between trust, corporate accountability, legal liability, reputation, and culture. We use the Trust Triangle to summarize recent developments in the empirical (...) finance literature that examine how trust is formed and how trust, or its absence, affects financial markets, firm performance, and the incidence of financial fraud. To date, most studies examine only one leg of the Trust Triangle in isolation. The evidence, however, indicates that all three legs of the Trust Triangle have first-order effects on a wide range of financial outcomes and that they are interrelated. Attempts to model trust and trustworthiness that do not incorporate all three aspects of the Trust Triangle will therefore miss essential aspects of the basic economic problem of how counterparties overcome the risks of moral hazard, asymmetric information, and opportunism to engage in mutually beneficial exchange and production activities. We focus especially on culture-related mechanisms, a recently developed area in empirical finance research that has potential to influence the more established research on laws and reputation. (shrink)

Inconsistent information between an organization’s corporate social responsibility (CSR) commitments and perceived CSR (in-)action is a big challenge for organizations because this is typically associated with perceptions of corporate hypocrisy and related negative stakeholder reactions. However, in contrast to the prevailing corporate hypocrisy literature we argue that inconsistent CSR information does not always correspond to perceptions of corporate hypocrisy; rather, responses depend on individual predispositions in processing CSR-related information. In this study, we investigate how an individual’s moral identity shapes reactions (...) to inconsistent CSR information. The results of our three studies show that individuals who symbolize—i.e., display—their moral identity to the public more than they internalize moral values react less negatively to inconsistent CSR information. We also show that this weakens their anger and willingness to change company behavior. Furthermore, we find that this effect is amplified for extraverted but weakened for neurotic individuals. Our findings underline the importance of individual predispositions in processing CSR information. (shrink)