Trust As a Means of Improving Corporate Governance and Efficiency

Author/Editor:

Ralph Chami ; Connel Fullenkamp

Publication Date:

February 1, 2002

Electronic Access:

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Summary:

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.

Series:

Working Paper No. 2002/033

Subject:

Corporate governance Economic sectors Financial institutions Financial sector policy and analysis Insurance Labor Moral hazard Tax incentives Wages

English

Publication Date:

February 1, 2002

ISBN/ISSN:

9781451845198/1018-5941

Stock No:

WPIEA0332002

Pages:

36

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