The Trust Triangle: Laws, Reputation, and Culture in Empirical Finance Research

Journal of Business Ethics 163 (2):217-238 (2020)
  Copy   BIBTEX

Abstract

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.

Links

PhilArchive



    Upload a copy of this work     Papers currently archived: 90,616

External links

Setup an account with your affiliations in order to access resources via your University's proxy server

Through your library

Similar books and articles

Trust and Strategic Rationality.Bernd Lahno - 1995 - Rationality and Society 7 (4):442-464.
Is it commercially irresponsible to trust?Keith Blois - 2003 - Journal of Business Ethics 45 (3):183 - 193.
Hype and Public Trust in Science.Zubin Master & David B. Resnik - 2013 - Science and Engineering Ethics 19 (2):321-335.
Creating Trust.Robert C. Solomon - 1998 - Business Ethics Quarterly 8 (2):205-232.
e-Trust and reputation.Thomas W. Simpson - 2011 - Ethics and Information Technology 13 (1):29-38.
Deciding to Trust.Benjamin McMyler - 2017 - In Paul Faulkner & Thomas W. Simpson (eds.), The Philosophy of Trust. Oxford, UK: Oxford University Press. pp. 161-176.
Professional trust.Ian Frowe - 2005 - British Journal of Educational Studies 53 (1):34-53.

Analytics

Added to PP
2019-06-21

Downloads
23 (#584,438)

6 months
3 (#445,838)

Historical graph of downloads
How can I increase my downloads?