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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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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. 02/33

Subject:

English

Publication Date:

February 1, 2002

ISBN/ISSN:

9781451845198/1018-5941

Stock No:

WPIEA0332002

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

36

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