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Using data from a large survey of firms across 26 transition economies, this article assesses the extent of trust in business
relationships by measuring the level of prepayment demanded by suppliers, which we interpret as a measure of (dis)trust. We
investigate a range of potential determinants of trust and find that trust among businesses is highe...
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... now examine the country-level variation in prepayment more closely. Table 1 reports simple cross country correlations of prepayment with income per capita, the quality of governance and the level of economic reform. 6 There is a growing body of evidence that suggests that wealthier and better governed economies are also higher trust societies (Putnam 1993, Fukuyama 1995, Knack and Keefer 1997, Zak and Knack 2001, Rose-Ackerman 2001. ...
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There have been studies about citizens' perceptions of trust in the police in both developed and undeveloped economies relative to security guards, who for the most part are private citizens but whose job responsibilities and duties sometimes resemble some functions of the public police. In this paper, we examine security guards' attitudes regardin...
Citations
... Their approach is consistent with that of Berulava (2013), who also employs the trade credit variable (based on the share of goods sold on credit) as a proxy for trust-based relationships in a study of their effect on firm performance in transition economies. On the other hand, Raiser et al. (2008), in examining the extent of trust in business relationships, refer to the level of prepayment suppliers require from their customers as a measure of dis(trust). ...
Purpose: This paper aims to (1) provide insight into the cultural issues of the use of trade credit, focusing on the links between trade credit and trust, religion, and national culture, and (2) suggest potential directions for future research in this area. Design/methodology/approach: A literature review was conducted to identify the key cultural issues addressed in previous studies on trade credit and to summarize the research on the use of trade credit in three focus areas: trust, religion, and national culture. Findings: A literature review confirms that cultural factors, such as trust, religion, and national culture, play crucial roles in the provision and receipt of trade credit. Therefore, future research on trade credit should adopt a more comprehensive approach that extends beyond a purely financial perspective. Research limitations/implications: This review does not address all potential cultural factors that may impact the use of trade credit. In addition, the review is constrained by the limited research conducted in this area and the heterogeneity of the studies analyzed. Practical implications: Given the significance of trade credit in business operations, a thorough understanding of its cultural underpinnings can prove vital for the parties involved in a trade credit agreement. Originality/value: Despite the crucial importance of trade credit for companies and the extensive research devoted to it, the cultural dimension of its use remains an underexplored field. This article addresses this issue by providing an overview of the current state of research on trade credit concerning three cultural aspects: trust, religion, and national culture. Furthermore, the article outlines several potential directions for future research in the subject of the study. The article’s subject matter falls within the expanding domain of culture and finance. Keywords: trade credit, trust, religion, national culture, ethics. Category of the paper: Literature review.
... First, by focusing on examining the importance of trust as one of the factors within the business environment, we decrease the disparity between a large body of literature that emphasise the importance of trust for well-established markets on the one side and the literature analysing the importance of trust in transition countries on the other side (e.g. Fukuyama, 1995;Kornai et al., 2004;Manolova et al., 2007;Raiser et al., 2002Raiser et al., , 2007Rus & Igli c, 2005). Also, as the existing studies dominantly focus on the analysis of determinants of trust, we contribute to the literature by analysing the economic effects of trust on firms' performance. ...
... Knack andKeefer (1997, p. 1252) highlight that 'trust-sensitive transactions include those in which goods and services are provided in exchange for future payment, employment contracts in which managers rely on employees to accomplish tasks that are difficult to monitor, and investments and savings decisions that rely on assurances by governments or banks that they will not expropriate these assets'. Accordingly, the other two variables of interest are measures of trade credit and prepayment (as in Raiser et al.,2007), which could serve as a proxy for trust among firms. The BEEPS database contains a question regarding this, i.e. ' … what percentage of this establishment's total annual sales of its goods or services was sold on credit?', and ' … what percentage of the value of total annual purchases of material inputs or services was purchased on credit?'. ...
... However, it should be noted that there are some limitations in using these data as a trust measure. For example, trade credit can be used strategically as an instrument of price discrimination, the returns to which could be higher in the low-trust environment as more customers tend to be constrained by credit (Raiser et al., 2007). Also, one of the key problems with estimating the effects of trade credit as a trust variable on business performance is in the causality issue (Berulava, 2013). ...
The purpose of the paper is to analyse the effects of interpersonal trust in business relations (proxied by trade credit) and institutional trust (proxied by firms’ trust in courts) on firms’ performance. The analysis is performed on a specific sample of 1298 firms in Western Balkan countries which are usually characterized by negative social capital that is considered to hinder economic and social development at all levels. The methodological approach is based on the propensity score matching method and the obtained results show that firms’ perception of courts as fair, impartial and uncorrupted, is connected with lower costs and with positive expectations of an increase in sales in the upcoming period. On the other side, trade credit as a trust variable has a statistically significant and positive effect on firm productivity measured as sales per employee and on expectations of an increase in sales in the upcoming period. The paper contributes to the existing literature in terms of the choice of the post-socialist groups of countries for the analysis, the method that is used (treatment-effects estimation), and in terms of performing firm-level analysis of the effects of two types of trust on selected variables of firm performance.
... Third, public sector corruption declines trust in private sector corporations (Gillanders and Neseleveska 2016). For instance, Raiser et al. (2008) find that trust among firms is higher when legal enforcement is ensured. We argue that investors will be negatively encouraged to buy corporate bonds when they face inefficient markets with higher risks, worse corporate financial conditions, and/or lower trust. ...
Public sector corruption affects economic and financial outcomes, such as GDP growth, foreign direct investment, and government funding costs. Less is known about the spillovers from perceptions of public sector corruption on the private sector corporate bond market. In this paper, we assess the role of public sector corruption perception on corporate bond market variables in Europe using data of both country-level corporate bond indexes and firm-level corporate bond market issuances. At the aggregate country level, we find some evidence that country indices of corporate bonds' yields and coupons are higher in countries with more corruption. While we do not find effects of corruption on coupon rates at the individual firm level, we show that higher government corruption perception increases their yield to maturity and reduces the amounts raised by corporations through their bond issuances.
... Elsner, 2010;Elsner & Schwardt, 2014; for the stabilizing role of intrabusiness 'routines' for the interactions of intra-firm entities: Nelson & Winter, 1982). Raiser et al. (2007) deployed the transferred prepayment demanded by firms from their customers as a measure of trust. ...
... Elsner, 2010;Elsner & Schwardt, 2014; for the stabilizing role of intrabusiness 'routines' for the interactions of intra-firm entities: Nelson & Winter, 1982). Raiser et al. (2007) deployed the transferred prepayment demanded by firms from their customers as a measure of trust. ...
Emergence and growth, or deterioration, of general trust, endogenously depend on socio-economic transformations. This paper attempts to explain a shrinking general trust in China, against the background of its ‘reform-opening up’ phase, by means of repeated prisoners’ dilemma games on networks. We find that the more anonymous large-scale interaction arenas for immigrants in the boom regions, where lack of new, more appropriate network structures for them to substitute their lost rural home networks, resulted in higher uncertainty, integration failure, and less trust and cooperation. The general increase of social and geographical distance may have driven China from an ‘acquaintance society’ to a ‘stranger society’ with a lower general trust and institutionalized cooperation. A network model that addresses the interaction ‘deep structure’ of the socio-economy then may provide a potential strategic option for China to recover earlier high general trust.
... As the most appropriate measure of reforms for our analysis, we use the European Bank for Reconstruction and Development (EBRD) transition indicators (for more about benefits and limitations of using the EBRD transition indicators see in Mickiewicz 2010). In order to rule out the potential problem multicollinearity between individual indicators (Table 1), we calculated a single variable entitled Reform as unweighted average of six EBRD indicators: (1) small-scale privatization; (2) large-scale privatization; (3) governance and enterprise restructuring; (4) price liberalization; (5) trade and foreign exchange system; (6) competition policy (see similar approach in Elisabetta Falcetti, Tatiana Lysenko, and Peter Sanfey 2006;Martin Raiser et al. 2008;Milanović and Ersado 2012). The index calculated in this way shows the average intensity of institutional reforms. ...
This paper provides an explanation of income dynamics in the posttransition
EU countries from the perspective of institutional changes. As a result of
seemingly-unrelated regressions analysis on panel data from 1990-2014, we
find robust evidence of the relationship between income shares and
institutional reforms. The impact of reforms on the top and below-average
income shares is negative, whereas this effect on above above-average income
share is positive. Decline of income share for the richest class during the
post-transitional period can be attributed to the loss of privileges
associated with the existence of an institutional vacuum in the first years
of transition. Although transition increased wages for workers at the end of
income distribution, the job losses had a stronger effect than wage
increase, so the overall effect on income share of this group is negative.
The winners of reforms appear as the workers with above-average income,
whose skills are complementary to the changes instituted by transition to
market economy and integration in the EU. [Project of the Serbian Ministry of Education, Science and Technological Development, Grant no. 47010]
... A growing body of research suggests that social capital influences a wide range of significant economic and political phenomena (Glaeser, Laibson, Scheinkman, & Soutter, 2000). Trust lowers transaction costs in a trade and facilitates cooperation among entities that might otherwise view mutually advantageous exchange as too costly or risky (Raiser, Rousso, Steves, & Teksoz, 2008). Transaction costs in a trade do not only comprise traditional costs associated with logistics or transportation, trade barriers, and tariffs; it also includes searching costs, costs on gathering information of product quality and reliability, legal costs, and costs associated with international payments (Butter & Mosch, 2003). ...
... In related research, Djankov et al. (2008a) show that financial development is also related to debt enforcement rules. Property rights and enforcement rules are especially important for transition economies where new institutions were created (Raiser et al., 2008). Ranciere, Tornell and Vamvakidis (2010) view the general expectations of bailout policies (including not only bailouts of banks but also the retention of unsustainable exchange rate pegs) as one of the major motivations for foreign currency borrowing. ...
The paper investigates the link between macroeconomic shocks, the institutional environment and the responses of bank lending activities to the financial crisis. We hypothesize that property rights and the enforcement of rules are crucial for well-functioning markets, especially in transition and emerging market economies where new institutions were created. The empirical analysis adopts panel regression models with bank fixed effects. Our rich dataset contains 10,565 banks from 66 countries across the whole world. The uncertainty caused by selection of regressors is reduced by Bayesian model averaging. In addition, we put a special emphasis on the dynamic changes of probability to involve selected variables into the model. We identify ownership structures and confirm inverse effects of institutional environment on the government and private banks. We show negative effects of economic freedom, openness and globalization on the lending activity of government banks while low regulations increase lending activity of private banks. We argue that economic and financial openness reduces information asymmetries and increase competition in private banking sector which results in lower net interest margins. On the contrary, lending activity of government bank is supported by political constraints.
... Not only do formal institutions whose development is monitored by international organizations and reflected in special indices (such as Doing Business 2 etc.) play a role, informal ones do as well. These were noted by Saul Estrin and Tomasz Mickiewicz who among other things analyzed various attitudes, perceptions [Chepurenko, 2008], and social norms including trust [Raiser et al., 2003;Welter et. al., 2005]. ...
The subject of this article is the entrepreneurial activity of the population residing in the post-socialist countries of Central and Eastern Europe (CEE), and its goal is to identify different types of ecosystems of entrepreneurship in these countries by means of analyzing entrepreneurial activity in various countries/groups of countries considered in the context of their societal and economic development. Empirically this article is based upon data from the Global Entrepreneurship Monitor (GEM). On the basis of an analysis of the strengths and weaknesses of existing approaches in the relevant literature to the taxonomy of business ecosystems, using a set of key country-level indicators of the GEM for 2011, this article proposes a taxonomy for entrepreneurship ecosystems
Keywords:
entrepreneurship ecosystem;
entrepreneurial activity;
Central and Eastern Europe;
entrepreneurship theory.
based on two «axes» — the quality of entrepreneurial activity (high, average, below average) and the state of the entrepreneurial framework conditions in the respective countries (favorable, average, below average). The result is a clustering of CEE countries’ entrepreneurship ecosystems, where the worst cluster consists solely of Bosnia and Herzegovina, and the best contains the Czech Republic. Russia belongs to a cluster with mid-level indicators along both axes. The results might be used to implement a more focused policy promoting entrepreneurship and support for small businesses, which must move away from generalized schemes towards concrete policy concepts taking into account the resources and limitations of each of the selected types of entrepreneurship ecosystems.
... Speculations express optimism: economic freedom, smooth functioning of state institutions, and anti-corruption actions imposed on the new members by the European Union may support building social capital (Fidrmuc and Gërxhani 2008). Indeed, it has been shown that trust grows in a favorable institutional environment, such as a fair judicial system (Raiser et al. 2003), efficient legal structures and secure property rights (Berggren and Jordahl 2005). However, preliminary empirical evidence from the early 1990s to 2008 (Sarracino 2011; Mikucka and Sarracino 2014) suggests a less cheerful picture: since the fall of communism , Eastern Europe experienced a decline in membership in voluntary associations, social trust and trust in the judicial system. ...
The evolution over time of subjective well-being (SWB) in transition countries exhibit some peculiarities: greater variations which are more strongly correlated with the trends of GDP relative to other countries. What is the possible role of social trust in predicting such variations? We compare the capacity of the trends of GDP and of social trust to predict the trends of SWB. We find that the strength of the relationship between social trust and SWB over the medium-term is comparable to that of GDP. Our conclusion is that in the medium-term, even in countries considered as an extreme case of relevance of material concerns for well-being, social trust is a powerful predictor of the evolution over time of SWB. However, in the short run the relationship between social trust and SWB does not hold and GDP stands out as the only significant correlate of SWB.
