Trust As a Means of Improving Corporate Governance and Efficiency
IMF Working Papers, February 1, 2002
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Bibliographic details
- Authors: Ralph Chami, Connel Fullenkamp
- Published: February 1, 2002
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451845198.001
Summary and core findings
- Agency problems within the firm are a significant hindrance to efficiency.
- The paper proposes trust between coworkers as a superior alternative to the standard tools used to mitigate agency problems: increased monitoring and incentive-based pay.
- Trust induces employees to work harder, relative to those at firms that use the standard tools.
- Employees at trusting firms have higher job satisfaction.
- Trusting firms enjoy lower labor cost and higher profits.
- Trust may also be easier to use within the firm than the standard agency-mitigation tools.
Analytical focus and themes
- Examination of agency problems within firms and comparative effectiveness of mitigation mechanisms.
- Comparison of trust-based governance to:
- increased monitoring, and
- incentive-based pay.
- Outcomes assessed include worker effort, job satisfaction, labor costs, and firm profits.
- Concepts and keywords emphasized in the paper: asymmetric information, company loyalty, corporate governance, efficiency, moral hazard, nonaltruistic firm, profit sharing, shareholder-employee agency relationship, trust, wage contract, Wages.