-
TRUSTS MULTI-DIMENSIONAL FORM AND ROLE IN BANK-SMALL FIRM
RELATIONSHIPS
Patrick Saparito Whittemore School of Business and Economics
University of New Hampshire 15 College Road, McConnell Hall
Durham, NH 03824 (603) 862-3348
[email protected]
Chao Chen New York University, Stern Business School
KMC Building 7-64 44 West 4th Street
New York, NY 10012 (212) 998-0421
[email protected]
The authors gratefully acknowledge the Kauffman Foundation for
financially sponsoring this research and thank both Dr. Roy Lewicki
and Dr. Harry Sapienza for their thoughtful comments.
-
Trusts Multi-Dimensional Form and Role, Page 1
TRUSTS MULTI-DIMENSIONAL FORM AND ROLE IN BANK-SMALL FIRM
RELATIONSHIPS
Abstract (168 words)
We examine trust's multi-dimensional form and role in bank-small
firm relationships. In
doing so, we employ the trust typology developed by Lewicki
& Bunker (1996) that includes:
calculus-based trust, knowledge-based trust, and
identification-based trust. We draw
connections between previous agency and sociological discussions
on bank-small firm
relationships and highlight the parallels between these
approaches and the trust perspective
employed here.
We explore how banking practices influence each dimension of a
customer's trust in their
bank and how this trust is associated with a small business's
customer satisfaction. The
theoretical framework is empirically tested using data collected
from a matched sample of 867
small business executives and bank managers that had direct
responsibility for these accounts.
The results suggest that the three trust dimensions exist at the
inter-organizational level within
bank-small business relationships. Further, we found that a
relational banking strategy and
management continuity differentially affected the trust
dimensions. The three trust dimensions
in turn displayed different effect sizes on customer
satisfaction. Finally, we present implications
for future research and practice.
Keywords: Small business finance, Banking, Trust
-
Trusts Multi-Dimensional Form and Role, Page 2
INTRODUCTION
Although small and new ventures play an important role in US
economic growth, there is
a long-standing notion that small firm size may hinder access to
capital markets (Petersen &
Rajan, 1994). Access to resources is essential to small firm
growth, and resource barriers may
attenuate these companies success (Churchill & Lewis, 1983).
This is particularly true of
financial resources (Berger & Udell, 1998).
Trust has surfaced as an important variable between investors
and the small firms in
which they invest (Cable & Shane, 1997; Sapienza &
Koorsgaard, 1996). However, nearly all
attention has focused on trusts role in equity investor-small
firm relationships. This is the case
despite the fact that the vast majority of small businesses
never access venture or angel equity
capital and instead rely heavily on commercial banks for outside
funding (Berger & Udell,
1998). Therefore, we feel the study of trusts role in bank-small
firm can begin to fill a gap in
the management literature and have import for the small business
sectors health and well being.
Financial theorists predominately conceptualize lender-borrower
relationships from a
principal-agent perspective (e.g., Jensen & Meckling, 1976;
Peterson & Rajan, 1994). A principal-
agent relationship exists when one party (the principal)
authorizes another party (the agent) to act on
his or her behalf and the principals welfare can be affected by
the agents actions (Arrow, 1985).
However, as an undersocialized view of economic exchange
(Donaldson, 1990; Perrow, 1981),
agency theory research does relatively little to explore the
social-psychological factors that
pervade inter-firm relationships. Additionally, agency theory
inherently focuses on the problems
of investors (Perrow, 1981) creating a unidirectional,
hierarchical relationship where bank
investors seek to control investees behaviors (Amit, Glosten
& Muller, 1990; Cable & Shane,
1997). This is the case despite assertions by bankers that
bank-firm relationships are an
-
Trusts Multi-Dimensional Form and Role, Page 3
important means to expanding bank-firm interaction across
multiple products (e.g., deposit
accounts, investment advisory, etc.) in which the firm is
principal and the bank is agent.
Alternatively, the management literature suggests that the
complex nature of inter-
organizational relationships arises from the
social-psychological factors involved in the
interaction (Ring & Van de Ven, 1994). Over time business
individuals learn about one
anothers preferences, develop special understandings which
allows cooperation between
organizations to unfold (Browning, Beyer & Shelter, 1995;
Doz, 1996). Further, sociologists
argue that social relationships play an important role in the
way bank-firm transactions are
governed, the degree of access to debt, and cost of capital
(Uzzi, 1999; Zucker, 1986).
We examine bank-small firm relationships from a
multi-dimensional trust perspective for
two main reasons. First, most studies measure the nature of
bank-firm relationships through
examining the relationships duration, or breadth across products
(e.g., Petersen & Rajan, 1994;
Uzzi, 1999). However, a trust perspective allows an explicit
examination of these relationships
social-psychological aspects. Second, a trust perspective shed
lights on principal-agent
conceptualizations (Shapiro, 1987) as well as the small but
growing social network approaches to
bank-small firm relationships (e.g., Uzzi, 1999, Uzzi &
Gillespie, 1999).
This paper will take a similar approach to that taken by the
majority of the venture
capital-small firm research, which is to approach the issue
investor-investee relationships from
the supply side perspective of the venture capitalist (in our
case the bank) and explore how that
influences outcomes for the small business (Mason &
Harrison, 1999). To accomplish this, we
first introduce the trust typology by Lewicki and Bunker (1996)
and highlight how this typology
relates to issues in agency theory and sociology about
bank-small firm relationships. Second, we
examine how banking strategy and practices influence different
trust dimensions, which in turn
-
Trusts Multi-Dimensional Form and Role, Page 4
affect customer satisfaction. Third, we empirically test the
trust typology and the proposed
relationships between trusts antecedents and consequences.
Finally, we discuss implications.
THE CONCEPT OF TRUST
Trust has been approached from multiple disciplines,
perspectives, and levels of analysis,
producing a multiplicity of meanings for the term (Rousseau,
Sitkin, Burt & Camerer, 1998).
Despite this, nearly all scholars agree that there are two
essential elements to the concept of trust:
positive expectations and a willingness to be vulnerable
(Rousseau et al., 1998: 394). Positive
expectations are confident beliefs held by Party A that Party B
will act in a fashion that is
consistent with Party As welfare (Zucker, 1986). Vulnerability
can be conceived as risk of
potential loss and suggests that the trustor is willing to take
a risk by placing his or her welfare in
the hands of another (Mayer, Davis & Schoorman, 1995).
Therefore, we adopt a general
conceptualization of trust put forth by Rousseau et al (1998) to
guide this study: Trust is a
psychological state comprising the intention of one party to
accept vulnerability based upon
positive expectations of the intentions or behavior of another
party.
It is worth noting that this general definition of trust
captures the fundamental
relationship of a principal-agent situation: a principal
authorizes an agent to act on his or her
behalf and the principals welfare can be affected by the agents
actions (Jensen & Meckling, 1976).
One might conclude that rational principals only willingly place
their welfare in an agents hands to
the extent that they have positive expectations that the agent
will carry out what they have been
charged with. That is, as Shapiro (1987) points out from a more
sociological perspective, within
each principal-agent relationship lies an act of trust.
-
Trusts Multi-Dimensional Form and Role, Page 5
Three Dimensions of Trust
Recent discussions in the trust literature suggest that trust is
a multi-dimensional
construct that can take various forms (e.g., Lewicki &
Bunker, 1996; McAllister, 1995). For
instance, Zucker (1986) discusses three forms of trust:
institutional-based trust that flows from
legal and financial systems that feature safeguards against and
punishments for malfeasance;
process-based trust that flows from past interactions and
reputation; and, characteristic-based
trust that is tied to ethnicity or familial ties. Alternatively,
McAllister (1995) proposes two forms
of trust: cognitive-based trust that is based upon beliefs about
anothers abilities; and, affective-
based trust, which founded upon social-psychological bonds
between parties. Building on earlier
work by Shapiro, Sheppard, and Cheraskin (1992), Lewicki and
Bunker (1996) proposed three
bases of trust: calculus, the rational calculations of rewards
and punishments; knowledge, the
possession of specific information of the other party; and,
identification, appreciation of and
identity with the other party.
We found Lewicki and Bunker's (1996) trust typology particularly
useful for exploring
investor relationships with small businesses. First, the
typology is compatible with a dyadic
(bank-borrower) level of analysis. Second, as we will detail
below this typology allows
researchers to better capture the complex, multi-dimensional
nature of bank-firm relationships
while simultaneously shedding light on other theoretical
explanations of these relationships.
Calculus-Based Trust (CBT)
CBT emphasizes the pragmatic and rational consideration of
self-interest between
interdependent parties whose compliance is ensured by a system
of punishments and rewards
(Lewicki & Bunker, 1996). In other words, Party A
confidently enters into a vulnerable situation
-
Trusts Multi-Dimensional Form and Role, Page 6
because it is in Party Bs rational self-interest to behave in a
fashion that is consistent with Party
As welfare. These authors extend Shapiro, et al.s (1992) notion
of deterrence based trust
because CBT is grounded not only in the fear of punishment
violating the trust but also in the
rewards to be derived from preserving it (Lewicki & Bunker,
1996: 120).
CBT is most consistent with agency theorys focus on reward
structures and how they
will guide/align actions that constrain opportunism. Goal
aligning mechanisms which provide a
basis for trust may include various contractual remedies,
reputations within common networks,
or information spread through institutional mechanisms
(Granovetter, 1985; Shapiro, 1987;
Zucker, 1986). Within banking, examples of such mechanisms
abound which leads some to
conclude that CBT pervades investor-investee relationships
(Harrison, Dibben & Mason, 1997).
For example, contracts for time deposits, cash management
services, and financial advice
provide for legal remedies (e.g. punishments) should either the
bank or business break the
contract. In the case of loan default, banks can confiscate
collateral that acts as a punishment to
motivate loan contract compliance. Conversely, timely loan
repayment establishes a reputation
as a good credit risk.
Rousseau et al., (1998) argue that the above control structures
are not trust per se but
instead a substitute for trust. While recognizing that CBT
characterizes impersonal, arms length
business relationships, we nevertheless maintain that the
emergence or existence of these control
mechanisms generates sufficient positive expectations between
unfamiliar parties such that they
are willing to enter into vulnerable situations. As suggested by
Zucker (1986), institutional
control mechanisms within the banking industry arose to reduce
opportunism and uncertainty for
parties not embedded in social relationships. Uzzi (1999) found
that arms length ties played
an important role in helping small firms obtain favored
treatment in the form of lower interest
-
Trusts Multi-Dimensional Form and Role, Page 7
rate loans. It is in this sense of acceptance of vulnerability
on the basis of positive expectations
that the control mechanisms constitute a form of trust. From a
developmental perspective, CBT
allows relative strangers to become sufficiently comfortable to
begin interaction and develop
their relationship into higher trust forms. This is why Lewicki
and Bunker (1996) consider CBT
to arise in the early stages of trust development. For the
purpose of our current study, which is
not concerned with the process of trust development, CBT
represents the more prevalent aspect
of business relationships that are less affected by specific
knowledge of or affiliation with the
transacting parties.
Knowledge-Based Trust (KBT)
KBT emphasizes information that accumulates over time through
repeated interactions,
making the parties behaviors more predictable, and is developed
through frequent contact and
communication that facilitate an understanding of each partys
wants, preferences, and
approaches to problems (Lewicki & Bunker, 1996: 121). KBT is
similar to Zucker's (1986: 60)
process-based trust in the sense that it is an imputation from
outcomes of prior exchange, [that]
provides data on the exchange process and to McAllisters (1995)
notion of cognitive-trust
which is defined as an understanding of a partys capabilities
and intentions. Consequently, with
KBT Party A has confident expectations about entering into a
vulnerable situation because he or
she has sufficient information about Party Bs past behaviors and
intentions such that he or she
believes Party B will behave in a fashion that is consistent
with his or her welfare.
Agency conceptualizations of bank-small firm relationships
similarly suggest that a
primary benefit of bank-firm relationships is the reduction of
asymmetric information (i.e.,
gaining information) through a history of interaction. The
information gained is referred to as
-
Trusts Multi-Dimensional Form and Role, Page 8
private information regarding a particular borrowers activities
from which lenders presumably
can form better predictions (Petersen & Rajan, 1994). From a
sociological perspective,
sociologists suggest that information exchange between banks and
small firms is enhanced by
embedding economic transactions in social relationships (Uzzi,
1999; Uzzi & Gillespie, 1999).
Primary outcomes of this information exchange is an enhanced
understanding of both parties
abilities and intentions, and increased reliance on trust. KBT
therefore captures the type of trust
arising from information exchange in socially embedded economic
relationships.
Identification-Based Trust (IBT)
IBT emphasizes the mutual appreciation of each others wants and
needs to the point
that each can effectively act for the other (Lewicki &
Bunker, 1996: 122). IBT is similar to
what Rousseau et al. (1998) call relational trust and what
McAllister (1995) calls affect-based
trust where emotion enters into relationships through frequent,
long-term interaction. IBT is
also reflected in Ring and Van de Vens (1994) discussion of the
development of social-
psychological bonds between interfacing individuals at their
respective organizations. Through
numerous interactions a sense of identity between interacting
parties develops, which facilitates
the emergence of trust in the goodwill of others and an
understanding of constraints on the
relationship (Ring & Van de Ven, 1994: 100). Therefore, with
IBT Party A has confident
expectations about entering into a vulnerable situation because
mutual identification between the
parties motivates Party B to act in accordance with Party As
welfare (Lewicki & Bunker, 1996).
Although not directly addressed in the agency theory literature,
IBT underlies what others
in organization economics refer to as social control. For
instance, Ouchi (1980) suggests that
through intensive socialization organizational members can come
to sufficiently identify with an
-
Trusts Multi-Dimensional Form and Role, Page 9
organization such that intense employee monitoring is not
needed. From social-relational
perspective, IBT characterizes deeply embedded ties between
banks and small firms that create
value in the dyad and motivate exchange partners to share that
value (Uzzi, 1999: 489).
To sum, financial scholars and sociologists talk about
contractual control mechanisms,
information, and social embeddedness that surround bank-small
firm relationships (Petersen &
Rajan, 1994; Uzzi, 1999; Uzzi & Gillespie, 1999; Zucker,
1986). We suggest that CBT, KBT
and IBT captures these dimensions within bank-firm
relationships. Although the literature has
advanced to the point that many agree that trust is an important
element in inter-organizational
relationships (e.g., Browning et al. 1995; Cummings &
Bromiley, 1996; Doz, 1996; Ring & Van
de Ven, 1994), the existence of CBT, KBT and IBT between firms
remains untested. We
therefore explicitly propose that:
Hypothesis 1: There are three distinct dimensions of trust in
bank-small firm
relationships: CBT, KBT and IBT.
Relationships among the Trust Dimensions
To enrich our understanding of a multi-dimensional construct it
is important to explicitly
specify the relationships among the dimensions (Law, Wong &
Mobley, 1998). Lewicki and
Bunker (1996) suggest that these trust bases evolve through a
stagewise process progressing
from an initial stage of relationship development that relies on
CBT, to an intermediate stage that
relies on KBT, and finally a mature stage that relies IBT. These
authors discuss both trusts
transformational nature (i.e., more mature forms substantially
replace preceding forms and
require a fundamental perceptual shift about the relationship)
and expansive, additive nature (i.e.,
more mature trust forms build upon preceding forms). These two
views potentially suggest
-
Trusts Multi-Dimensional Form and Role, Page 10
different relationships among the three dimensions. If
relationships transform from lower to
higher forms of trust, at a given point in time we would not
expect to see the coexistence of all
three forms in a relationship because lower forms will be
replaced by the higher forms.
Alternatively, if higher more mature trust forms build upon
rather than replace lower trust forms
then we would expect coexistence of the trust forms. Further, as
the three trust dimensions are
conceptualized as sub-dimensions of the general construct of
trust, we would expect them to be
positively related to each other, even though at a given point
in time one dimension may be more
or less potent than other dimensions.
The coexistent and expansive argument, we contend, reflects
business relationships better
than the replacement argument. For example, business decisions
based purely on affect and
identification, with no economic and contractual control
mechanisms increases the vulnerability
of one or both parties, leading to potentially dangerous results
(Ring & Van de Ven, 1994). In
view of the above discussion, we propose:
Hypothesis 2: CBT, KBT, and IBT will be positively related to
each other.
ANTECEDENTS OF TRUST IN THE BANK: RELATIONAL STRATEGY AND
MANNAGEMENT CONTINUITY
Dunkleberg, Scott and Cox (1984) identified two important
factors that small business
customers consider important in their banking relationships. One
factor is a banks extra efforts
to go beyond arms length business transactions to collaborative
activities such as helpfulness,
information sharing and flexibility. These banking practices
constitute a relational business
strategy (Berlin & Mester, 1998; Elsas & Krahnen, 1998;
Binks & Ennew, 1997; Haines, Riding
& Thomas, 1991) that is designed to build long-term customer
relationships. Customer
-
Trusts Multi-Dimensional Form and Role, Page 11
relationships are an important means for differentiating a
companys services from its
competition (Porter, 1980), and these relationships can lead to
future sales opportunities (Bowen,
Siehl & Schneider, 1989). That is, through the
identification of unique customer needs, banks
are able to cross sell other financial service products and
increase the profitability of their
relationships with small firms (Berlin & Mester, 1998).
The second factor that small business customers consider
important but has received little
research attention is management continuity. Management
continuity refers to the continuance
of particular individuals or groups of individuals within
specific organizational roles (Doz, 1996;
Ring & Van de Ven, 1994). In the context of serving small
business customers (Dunkleberg et
al., 1984), it refers to the degree to which the bank
employee(s) who interacts with a particular
small business customer remains constant over the duration of
the firm-bank relationship.
Relational Strategy and Trust. A relational banking strategy
with small business
customers can have different effects on each of the three forms
of trust. As mentioned, CBT is
primarily generated through means such as contracts, collateral,
credit ratings, which have
traditionally been the basic tenets of transactions between
banks and small firms. However, a
relational strategy goes beyond these tenets by developing
long-term relationships with small
business customers. Such relationship building activities will
have significant positive effects on
KBT and IBT, but not CBT because they do not alter the economic
reward structure.
A relational strategy enhances KBT primarily because it
encourages communication and
information sharing with small business customers, through which
both parties come to a better
understanding of each others' preferences (Lewicki & Bunker,
1996). Such exhibited
cooperative activities are important in the assessment of a
partys trustworthiness (Mayer et al.,
1995). This allows a small firm to reflect on the banks track
record for role related duties in
-
Trusts Multi-Dimensional Form and Role, Page 12
assessing the banks trustworthiness (Granovetter, 1985;
McAllister, 1995) that provides a basis
for KBT development.
A relational strategy also fosters the development of IBT.
Advice giving, sharing of
unrequired information, and helping act as signal of the bank's
goodwill and intimacy (Das &
Teng, 1998: 505) and enhances the bank's credibility. Signals of
goodwill and intimacy enhance
the perception of value congruence, identification, and
commitment between the business
partners (Browning et al. 1995). Further, frequent dialogue and
interaction facilitate personal
relationships and psychological contracts between parties, which
facilitates moral integrity and
goodwill (Macualay, 1963 Ring & Van de Ven, 1994). In
summary, while not expecting it to
have a significant effect on CBT, we expect relational strategy
to have a significant positive
effect on both KBT and IBT. Hence:
Hypothesis 3: A relational banking strategy will have a positive
effect on a small
business customers KBT and IBT in the bank.
Management Continuity and Trust. Management continuity can
positively affect all
three dimensions of trust. First, management continuity fosters
stability in the rules of game.
Although banks may prescribe broad control mechanisms for
business relationships, the salience
and administration of these rules and regulations may vary among
organizational actors that may
inhabit a particular organizational role. Management continuity
of the bank enhances
consistency in enforcing the rules of the game, hence fostering
the development of CBT.
Furthermore, Doz (1996) suggests that management continuity
facilitates special understandings
and knowledge about a partners capabilities and ways of doing
things. In the context of bank-
small firm relationships, management continuity of the bank
allows small business customers to
-
-Dimensional Form and Role, Page 13
accumulate knowledge about the bank managers capabilities and
preferences for handling their
account, and this knowledge is an underpinning of KBT. Finally,
Ring and Van de Ven (1994)
suggest if interacting individuals remain the same, then through
cycles of negotiation,
commitment to action, and commitment execution, interactions
becomes more deeply socially
embedded. This ultimately results in greater reliance on
psychological contracts, and personal
relationships in governing the relationship. Further, it has
been found that deeply embedded
bank-small firm relationships are capable of developing common
understanding and values
(Uzzi, 1999) which fosters IBT.
To sum up the above discussion, management continuity will
create positive expectations
about future actions through introducing rule consistency,
knowledge, and identification between
the small business customer and the bank. More formally we
hypothesize:
Hypothesis 4: Bank management continuity will have a positive
effect on a small
business customers CBT, KBT, and IBT in the bank.
The Interaction Between Relational Strategy and Management
Continuity.
The presence of management continuity allows bank managers to
implement a relational
strategy more seamlessly. That is, the continuing bank managers
are in a better position to attend
to small business customers problems and needs by offering
relevant help and advice because
they have accumulated knowledge about customers. Conversely,
when management continuity
is low, new bank managers need to start from scratch about the
nuances of a small business
clients business, marketplace, and other unique circumstances.
Details of past problems and the
solutions to those problems are lost, and time and energy must
be spent by both parties to get
ious relationship. Consequently, it makes it difficult for the
new
-
Trusts Multi-Dimensional Form and Role, Page 14
manager to effectively implement the relational strategy with a
given client. We therefore
propose that management continuity will enhance the positive
effect of relational strategy on
KBT and IBT. More specifically:
Hypothesis 5: The positive effect of relational banking strategy
on a small business
customers KBT and IBT in the bank will be greater under high
management continuity
than under low management continuity.
THE EFFECT OF TRUST ON CUSTOMER SATISFACTION
Broadly, customer satisfaction refers to how positive a
customer's evaluation is of the
focal companys products and service (Goodman, Fichman, Lerch,
& Snyder, 1995). In bank-
small firm business transactions, customer satisfaction refers
to satisfaction with various service
related factors including: offering advice, understanding of the
clients business, market, and
financial needs, and the banks ability get the job done
(Dunkelberg et al 1984; Riding, Haines
& Thomas, 1994). Research investigating bank relationships
with small business clients
identifies customer satisfaction with service as an important
outcome to both banks and small
businesses (Dunkelberg et al. 1984; Ennew & Binks, 1997;
Haines, et al. 1991). Customer
satisfaction is also used as a measure of bank efficacy
(Schnieder, Parkington & Buxton, 1980).
Previous research has found that bank customer satisfaction is
affected by the closeness
and strength of bank-firm relationships and that such
relationship may include a special
emotional status [that] exists between the customer and the
service provider. (Barnes, 1997:
770). To the extent that trust is indicative of closeness and
strength, we expect greater trust in
the bank should generate greater satisfaction with the bank.
However, given the distinctive
nature of the three trust dimensions, we would like to focus on
the different impact size the
-
Trusts Multi-Dimensional Form and Role, Page 15
different trust dimensions have on customer satisfaction. As had
been previously argued, CBT,
KBT, and IBT are distinct and that each higher form of trust
contains additional social and/or
affective elements that have been absent in the lower forms of
trust. Accordingly we suggest
that the higher the trust form, the stronger and closer is the
relationship. Since the strength of
relationship is associated with the degree of service
satisfaction, we expect higher forms of trust
to have greater positive impact on service satisfaction.
Hypothesis 6a: IBT will have stronger positive effect on
customer satisfaction with the
bank than will KBT.
Hypothesis 6b: KBT will have stronger positive effect on
customer satisfaction with the
bank than will CBT.
METHODS
Design
We employed a matched sample design of bank customers and
respective bank managers
that have responsibility for each customers account. This design
allows for the reduction of
common method bias by using two separate sources to measure
bank-level independent variables
and customer-level dependent variables. In addition, we used
multiple bank managers at the
middle and top levels as informed observers (Chen, Farh &
MacMillan, 1993) to construct some
of the bank-level independent variables.
Samples and Procedures
Participating Banks. Since large banks are generally less
involved with small business
clients (Strahan & Weston, 1998), we targeted moderately
sized banks with total assets of $100
million to $10 billion to provide for variation independent of
organizational size. Twenty-two
-
Trusts Multi-Dimensional Form and Role, Page 16
banks from Connecticut, Missouri, New Jersey, and Pennsylvania
participated fully in the study
representing a 7.67 percent participation rate, and
participation rates between states did not differ
significantly (c2 = 4.55, n.s.). The median total assets for
banks that participated was $248.5
million versus $237.2 million for banks that did not, a
difference that is not statistically
significant according to an ANOVA (F = 0.95, n.s.).
The Sample of Small Business Customers. Each bank compiled a
list of small business
customers that had both deposit and lending relationships with
the bank. Small business
customers were defined in terms of having a credit limit of $1
million, a criterion consistent with
that adopted by U.S. Small Business Administration. To achieve a
random sampling, 350
surveys were distributed to the nth customer on an
alphabetically ordered list at each bank (n =
number of customers on list/350). For banks with fewer than 350
customers, all customers
received the survey. Cover letters from the respective banks
accompanied the survey and
requested that the survey should be completed by the person in
your organization that is chiefly
A total of 7,298 surveys were distributed. Overall, 1,093
surveys were returned
representing a 14.98 percent response rate, and 867 were
complete representing a 11.89 percent
usable response rate. The responding companies had a median age
of 15 years, a median of 6
non-owner full-time employees, median annual sales in the $500
thousand to $1 million range,
and conducted business with the bank a median of 5 years.
The Sample of Bank Managers. Each responding customer identified
the bank officer
primarily responsible for the companys account. In addition,
bank management identified the
executive in charge of small business lending operations. All
together 263 bank top- and middle-
level managers were identified and sent surveys, whose
participation was promised to be
-
Trusts Multi-Dimensional Form and Role, Page 17
confidential. Managers returned 217 surveys representing an
82.51 percent response rate. These
managers had a median tenure of 7 years with their banks.
Occupations and the percentages of
respondents in them were as follows: president, 5.6 percent;
executive in charge of small
business lending, 7.0 percent; branch manager, 47.9 percent;
lending officer, 31.2 percent;
customer relationship manager, 3.7 percent; and other, 4.6
percent.
Measures
CBT, KBT, and IBT. Following a procedure similar to Cummings and
Bromiley (1996),
we developed a new trust measure for this research. First,
drawing upon previous trust measures
(e.g., Butler, 1991; Cummings & Bromiley, 1996; McAllister,
1995) we adapted and created
items for each form of trust. Several constraints guided item
development: 1) The word trust
was not used in order to reduce the effect of social
desirability; 2) Items either reflected calculus,
knowledge, or identification; 3) Items were tailored to reflect
the context of bank-firm
relationships.
A list of twenty-one items was developed. Nine doctoral students
uninvolved with this
research were asked to put the items into three categories based
on three brief trust definitions.
We used Cohens kappa (Cohen, 1960) to assess the inter-rater
agreement of the categorization.
Kappas for all but two items were above the recommended .70
threshold, which provided
preliminary evidence for the discriminant validity of the trust
items. For the next validation
stage, we dropped the two items that failed to meet the .70
threshold.
To further explore the validity of the measures, we created
three different banking
scenarios each expected to elicit one of the trust dimensions.
We distributed these scenarios to
342 undergraduate business and MBA students. Each student
received one scenario and rated
-
Trusts Multi-Dimensional Form and Role, Page 18
the trustworthiness of the other party along the three trust
dimensions. The sample was split: one
third for exploratory factor analysis and the balance for
confirmatory factor analysis. Based on
results of both exploratory and confirmatory factor analyses,
four final items for each trust
dimension were selected for the present field study.
Results of confirmatory factor analyses show that the field data
of the small business
customers fit satisfactorily with the model of three trust
dimensions. All of the fit indices are
within acceptable levels as prescribed by Hu and Bentler (1995)
and Stiegler (1990). As shown
in Table 2, factor loadings on each of the respective constructs
are moderate to strong and each
factor loading is significant at the p < .001 level. The
scale reliabilities for CBT, KBT, and IBT
are a = .79, .86, and .87 respectively.
Customer Satisfaction. We measured customer satisfaction with
service by a four-item
scale adapted from Dunkelberg, Scott and Cox (1984). The items
were measured using a 7-point
Likert-type scale with 1 (very dissatisfied) to 7 (very
satisfied). The scale reliability for the
measure is a = .91. As shown in Table 2, service satisfaction
items form a factor distinct from
the trust dimensions.
Relational Strategy. Drawing upon a review of the literature and
previous measures
(Binks, Ennew & Reed, 1992; Haines, et al. 1991; Riding et
al. 1994) we created and adapted an
initial pool of eight items regarding relationship building
practices by the bank with their small
business customers. These items were pilot-tested on top- and
mid-level managers from national
and state banks across the U.S. who were attending a bank
professional organization meeting on
the topic of small business lending. Participants indicated
their level of agreement with various
statements using a seven point scale with 1 (strongly disagree)
to 7 (strongly agree). Based on
-
Trusts Multi-Dimensional Form and Role, Page 19
exploratory factor analyses, four items measuring relational
strategy were reworded and retained
for the present study. Reliability coefficient of the four items
for the present study is .80.
Management Continuity. Three original items for management
continuity created from
a review of relevant literature (Binks, et al. 1992; Dunkleberg
et al., 1984; Haines, et al., 1991;
Riding, et al. 1994). The measure of management continuity was
pilot-tested together with
relational strategy as described above. All the items survived
the test and were used for the
present study. The scale reliability for the present study is a
= .72.
To further examine the discriminant validity of relational
strategy and management
continuity, a confirmatory factor analysis was conducted on
items for the two new scales and
items for the two major control variables formalization and
centralization. As Table 3
demonstrates, all of the fit indices reached acceptable levels
prescribed by Hu and Bentler (1995)
and Stiegler (1990). Factor loadings on each of the respective
constructs are moderate to strong
and each factor loading is significant at the p < .001.
Control Variables. We controlled for bank and small firm
organizational and contextual
variables known to affect inter-organizational trust and
bank-small firm relationships. Bank
organizational variables included: bank size, market location,
bank formalization, and bank
centralization (Doz, 1996; Hawawini & Swary, 1990; Petersen
& Rajan, 1994; Strahan &
Weston, 1998; Uzzi, 1999). Bank size was measured as the natural
log of total assets and these
data were collected from each banks 1999 annual report. Market
location was a dummy variable
with banks headquartered in each respective state coded as 1 and
all other banks coded as 0. We
measured bank formalization by adapting three items from Nohria
and Ghoshal (1994) to reflect
a bank's dealings with small business clients. Bank managers
were asked to indicate their level
of agreement using a seven point Likert-type scale from 1
(strongly disagree) to 7 (strongly
-
Trusts Multi-Dimensional Form and Role, Page 20
agree). The scale reliability for formalization is a = .78.
Finally, we measured bank
centralization by adapting three items from Nohria and Ghoshal
(1994). Each item was
measured by asking bank managers to indicate the degree that
decisions regarding lending, credit
terms, and fees are centralized within the bank, ranging from 1
(Central management/customer
service center alone), 4 (Equal input), to 7 (An account
officer/the branch alone). The scale
reliability for centralization is a = .94.
Small firm characteristics and contextual variables identified
as important to bank-small
firm relationships include: log of a firms sales revenue, number
of employees, firms age, age of
the bank-small firm relationship, and level of interdependence
between the firms (Dunkleberg,
1998; Gulati, 1994; Lewicki & Bunker, 1996; Petersen &
Rajan, 1994; Sheppard & Sherman,
1998; Uzzi, 1999). All of these variables were based on the
reports of the small business
customers. The log of a firms sales revenue was the total
revenues for the most recent fiscal year
using a logarithmic scale of: 1, less than $250 thousand; 2,
$250 to $500 thousand; 3, $500
thousand to $1 million; 4, $1 million to $2 million; 5, $2
million to $4 million; 6, $4 million to
$8 million; and 7, over $8 million. Number of employees referred
to the number of full-time
non-owner employees. Small firms age was the number of years
that the firm has been in
operation. The age of the bank-firm relationship was the number
of years the company has
conducted business with the bank. Finally, interdependence
between firms was a dummy
variable with 1 indicating the bank was the companys primary
financial bank and 0 if it was not.
Analysis
The Aggregation of Organizational Level Variables. Aggregating
employee
perceptions is a valid means to measure organizational level
variables (Rousseau, 1985) and
-
Trusts Multi-Dimensional Form and Role, Page 21
reduces error by averaging out individual biases and errors
(Robinson & OLeary-Kelly, 1998).
However, inter-rater reliabilities should be established before
aggregation (Chen, Farh &
Macmillan, 1993). Values above 0.70 are considered desirable
(George, 1990). We estimated
the rwg(j) statistics of manager perceptions on various
bank-level constructs for each bank
according to the procedures outlined in James, Demaree, and Wolf
(1984, 1993), This analysis
using a rectangular uniform null distribution yielded values
that indicate acceptable agreement
for all variables. Values for relational strategy ranged from
0.73 to 0.96 with a median of 0.84.
Values for management continuity ranged from 0.72 to 0.96 with a
median of 0.84. Values for
formalization ranged from 0.70 to 0.93 with a median of 0.81,
and values for centralization
ranged from 0.71 to 0.90 with a median of 0.79.
Multicollinearity. In order to reduce multicollinearity, we
centered relational strategy
and management continuity before creating the interaction term
(Neter, Wasserman & Kunter,
1990). We tested for multicollinearity and found no problems as
all Variance Inflation Factors
(VIF) were well below the suggested 10 cut-off level (Neter,
Wasserman & Kunter, 1990).
Hypothesis Testing. A confirmatory factor analysis results was
used to test Hypothesis 1
about the distinctiveness of the three dimensions of trust. In
addition, two sets of hierarchical
linear regressions were conducted to test the rest of the
hypotheses. In the first set of regressions
examining the effects of trust antecedents, the dependent
variables were the three dimensions of
trust. We entered the control variables in the first step,
relational strategy and management
continuity in the second, and the interaction between relational
strategy and management
continuity in the third. Finally, in the fourth step when the
dependent variables were KBT and
IBT, we included the lower trust form(s) to examine if, after
holding for constant other variables,
the lower trust form(s) still significantly contributed to the
higher trust forms.
-
Trusts Multi-Dimensional Form and Role, Page 22
In the second set of hierarchical regression analyses examining
the effects of trust on
customer satisfaction, we entered in step one all of the control
variables, bank strategy, and
management continuity, in steps two we controlled for two trust
dimensions, and in step three we
entered the third trust dimension. We then compared the added
explanation of variance of each
of the three trust dimensions while controlling for the other
two.
RESULTS
Table 3 presents the means, standard deviations and Pearson
correlations for all of the
variables. The correlations among the bank level variables are
generally low and insignificant,
perhaps due to the small sample size of participating banks. One
notable exception is the
significant positive relationship between bank size and
formality.
Distinctiveness of the Three Dimensions of Trust. To test
hypothesis 1 regarding
distinctiveness among the three trust dimensions, we performed a
confirmatory factor analysis on
the combined trust data collected from both small business
customers (n = 977) and bank
managers (n = 213) that participated in this study. The results
of the confirmatory factor analysis
are: GFI = .93; NFI = .94; IFI = .94; TLI = .93; CFI = .94;
RMSEA = .087. Since the fit indices
are within acceptable ranges as prescribed by Hu and Bentler
(1995) and Stiegler (1990), we
conclude that the three-factor model fit the trust data
adequately well and the three trust
dimensions form distinct factors. To further test for
discriminant validity of the trust dimensions,
we conducted chi-square difference tests by fixing the
correlation of each pair of two factors to
1.0 and comparing the chi-square value of the unconstrained
model with the constrained model.
Each test showed large and significant between model chi-square
differences indicating a loss of
fit and suggesting evidence of discriminant validity. Hypothesis
1 is therefore supported.
-
Trusts Multi-Dimensional Form and Role, Page 23
The Positive Relationship among the Three Dimensions of Trust.
The significant
positive correlation coefficients among the three trust
dimensions (Table 3) show that they are
positively related to each other, providing preliminary support
for Hypothesis 2. In addition,
results of hierarchical linear regressions for KBT and IBT (Step
4, Table 4) showed that after
controlling for all other variables, CBT significantly
contributed to KBT, and CBT and KBT
significantly contributed to IBT. Based on the consistent
results of the correlational and
regressional analyses, we concluded that Hypothesis 2 is
supported.
The Effects of Relational Strategy, Management Continuity and
Their Interaction.
As shown in Step 2 of Table 4, relational strategy had a
positive effect on KBT and IBT but not
on CBT. Hypothesis 3 is therefore supported. The regression
results also found that although
management continuity significantly predicted CBT and KBT, it
did not predict IBT. To explore
a possible curvilinear relationship between management
continuity and IBT, a post hoc
examination was conducted. We discovered that there was indeed
an overall positive but
diminishing relationship between management continuity and IBT.
In any case, the results
showed partial support for Hypothesis 4. Results of the
interaction effects found that the
interaction term was a significant predictor and explained
significant variance of both KBT and
IBT. However, the direction of the interaction was opposite to
what we hypothesized. As shown
in Figure 1, the positive effects of relational strategy on KBT
and IBT are stronger under low
rather than high management continuity even though high
management continuity on the average
generated higher trust. These results suggest that hypothesis 5
is not supported.
The Effect of Trust on Customer Satisfaction. Simple correlation
coefficients show
that all trust forms are positively related to customer
satisfaction (see Table 3). Additionally,
regression analysis results show that each trust dimension is
positively related with customer
-
Trusts Multi-Dimensional Form and Role, Page 24
satisfaction after holding constant all the control variables,
relational banking strategy, and
management continuity (CBT b = .28, p < .001; KBT b = .65, p
< .001; IBT b = .71, p < .001).
To explore the relative effect size of each trust dimension, we
explored the unique
explanation of variation of each trust dimension while
controlling for the other two. As Table 5
(Step 2) shows, IBT explained a unique ten percent of the
variance in customer satisfaction
whereas KBT explained only two percent. These results provide
evidence in support of
Hypotheses 6a. Similarly, Table 5 (Step 2) demonstrates that CBT
did not explain any additional
variance in customer satisfaction when controlling for the other
two trust dimensions.
Hypothesis 6b is therefore supported. In sum, the positive
effect of IBT on customer satisfaction
is greater than that of KBT, which in turn is greater than that
of CBT.
DISCUSSION
The Multi-Dimensional Nature of Inter-Firm Trust
Although the inter-personal trust literature has moved toward a
multi-dimensional
conception of trust, there has been little research that
explores the multi-dimensionality of trust
between organizations. This study provides consistent evidence
for the convergent and
discriminant validity of three trust dimensions in bank-small
firm relationships. First, the trust
measures formed distinct factors along the trust dimensions.
Second, as predicted, relational
strategy fostered KBT and IBT but not CBT. Third, again as
theoretically predicted, we found
that the positive impact of trust on satisfaction varied among
the trust dimensions: each
successively higher trust form offered greater power of
explanation for customer satisfaction
than did the lower trust forms.
-
Trusts Multi-Dimensional Form and Role, Page 25
These results demonstrated the utility of a multi-dimensional
trust perspective for
studying different aspects of bank-small firm relationships.
Banking and management scholars
have long recognized the importance of calculated control
mechanisms, and more recently, of
information and knowledge in governing the bank-customer
business relationships (Petersen and
Rajan, 1994; Uzzi, 1999; Uzzi & Gillespie, 1999). That
research has provided indirect evidence
for the effects of CBT and KBT. What has remained under-explored
is the role of value
congruence, identification and affect. The fact that IBT not
only existed, but had the strongest
impact on customer satisfaction in financial businesses that are
supposed to be dominated by
economic rationality serves to underscore the promise of this
form of trust in business
relationships. The multidimensional trust approach provides a
parsimonious framework to study
and compare effects of economic, social, and psychological
ties.
The Role of Relational Strategy and Management Continuity
We predicted that relative to relational strategy, a bank's
management continuity in
serving small business customers would have a more pervasive
effect in that it would produce
not only KBT and IBT but also CBT. While our prediction is
supported regarding CBT and
KBT, management continuity did not show a significant linear
relationship with IBT but rather a
curvilinear relationship, which shows a diminishing return of
additional management continuity
in producing IBT. This suggests that having stable
representatives interact on behalf of
organizations could generate trust up to a certain point. We
feel that our findings regarding
management continuitys association with a small firms trust in
the bank may in part be due to
the fact that management continuity allows the small firm to
develop trust in the individual bank
manager. Consequently, further refinement of the model may be
required to distinguish between
-
Trusts Multi-Dimensional Form and Role, Page 26
the trust that inter-organizational actors place in individuals
at the other organization, as well as
the other organization itself (Zaheer, McEvily and Perrone,
1998).
The interaction of relational strategy and management continuity
was in the opposite
direction of what we proposed. The unexpected finding may
indicate that management
continuity can substitute some of the effect of relational
banking strategy on creating KBT and
IBT. It is possible that management continuity naturally entails
performing some of the
relationship building activities prescribed by a relational
strategy. Consequently, when there is a
high level of management continuity, the positive effect of
relational strategy is muted.
A related issue is the effect of the length of a relationship,
which has been considered
important in both the trust typology (Lewicki & Bunker,
1996) and bank-firm relationships
(Petersen & Rajan, 1994; Uzzi, 1999). Yet, in this study,
bank-firm relationships age is not
significantly related to any trust dimension or to customer
satisfaction. This seems to suggest
trust and satisfaction may not automatically develop as a result
of a relationships duration.
Factors such as relational strategy and management continuity
tell more about how the parties
interact than the relationships duration.
Limitations
This study has two limitations that should be pointed out.
First, the original trust
framework proposed by Lewicki and Bunker (1996) is one of trust
development overtime. We,
however, operationalized and tested the model with
cross-sectional survey data at a given point
in time. Our use of different samples for collecting data on
trust antecedents and trust helped
reduced common method biases. Yet, the complex relationships
among the three dimensions as
proposed by Lewicki and Bunker (1996) could better be delineated
through longitudinal in depth
-
Trusts Multi-Dimensional Form and Role, Page 27
case studies. For instance, as a relationship matures towards
higher trust forms, to what extent
are trusting parties (based on knowledge and or identification)
willing to circumvent regular
calculus oriented banking practices? This is as much a
theoretical as an empirical question. We
argued that at least in the United States banking industry the
economic control devices created a
basis of trust, which remains even as KBT and IBT emerge.
However, our argument cannot be
directly answered with the cross-sectional quantitative data.
Future study using in depth
interviews and longitudinal data of long standing business
relationships would be more
appropriate.
A second limitation of this study is the lack of data on mutual
trust. Given the reciprocal
social nature of trust, future studies could explore antecedents
and consequences of mutual trust
between interacting parties. The challenge for studying mutual
trust is that it requires much
greater access to and disclosure from both banks and the small
businesses about their
relationships.
Theoretical and Practical Implications
Despite this studys limitations, some important theoretical and
practical implications can
be drawn. At the conceptual and theoretical level, we find the
relationship between CBT on one
hand and KBT and IBT on the other of great interest and
importance. A number of
considerations may help shed light on our finding that CBT
contributed to both KBT and IBT.
The first is the difference between interpersonal and
inter-organizational relationships. The
second is the difference between social and economic activities.
And lastly, cultural differences
in dealing social and business relationships. Whereas our
finding may make sense in financial
transactions between two organizations in an individualistic
society, its replication is by no
-
Trusts Multi-Dimensional Form and Role, Page 28
means certain in social relationships, at the interpersonal
level, or in collectivist cultures. For
example, it would be interesting to examine whether in Japan or
Korea identification substitutes
for or coexists with CBT in bank-customer relationships and
whether substitution led to recent
financial crises in the Asian societies.
A second theoretical implication of our study is the conception
of banks business
strategy for studying bank-small business relationships. Given
multiple independent nature of
trust dimensions, researchers may need to think about how these
different trust dimensions
mediate the role between business-level strategy and numerous
customer outcomes. For
example, individual customer attention is an efficacious, but
expensive way of differentiating a
companys services from competitors (Porter, 1980). Relying
heavily on this notion, many large
US banks choose to pursue cost leadership strategies that allow
them to offer products at lower
interest rates and fees. However, cost leadership may not
develop KBT or IBT, and these trust
forms may create switching costs for customers and relational
rents for banks.
Practical implications for banks include potential prescriptions
for modes of interaction
with small businesses to facilitate bank-small firm
relationships. This study suggests at least two
effective ways of fostering client trust in the bank: pursuing a
relational strategy that address the
special needs of the small businesses and designating stable
personnel specializing in dealing
with small businesses. By adopting these strategic and
administrative devices focusing on
enhancing the interfacing capacity of dealing with small
businesses, banks can go a long way
towards winning not only trust but also business from their
small business customers.
-
Trusts Multi-Dimensional Form and Role, Page 29
REFERENCES
Amit, R., Glosten, L. & Muller, E. 1990. Entrepreneurial
ability, venture investments, and risk sharing. Management Science,
38(10): 1232-1245. Arrow, K. 1985. The economics of agency. In J.W.
Pratt and R.J. Zeckhauser (Eds.). Principals and Agents: The
Structure of American Business, 37-51. Boston, MA: Harvard Business
School Press.
Barnes, J.G. 1997. Closeness, strength, and satisfaction:
Examining the nature of the relationship between providers of
financial services and their retail customers. Psychology and
Marketing, 14 (8): 765-790.
Berlin, M. & Mester, L.J. 1998. On the profitability and
cost of relationship lending. Journal of Banking and Finance, 22:
873-898.
Berger, A. & Udell, G. 1998. The economics of small business
finance: The roles of private equity and debt markets in the
financial growth cycle. Journal of Banking and Finance, 22:
613-673.
Binks, M.R., Ennew, C.T. & Reed, G.V. 1992. Information
asymmetries and the provision of finance to small firms.
International Small Business Journal, 11(1): 35-46.
Binks, M.R. & Ennew, C.T. 1997. Smaller businesses and
relationship banking: The impact of participative behavior.
Entrepreneurship Theory and Practice, 21(4): 83-92.
Bowen, D.E., Siehl, C. & Schneider, B. 1989. A framework for
analyzing customer service orientations in manufacturing. Academy
of Management Review, 14(1): 75-95.
Browning, L.D., Beyer, J.M. & Shelter, J.C. 1995. Building
cooperation in a competitive industry: SEMATECH and the
semiconductor industry. Academy of Management Journal, 38(1):
113-151.
Butler, J.K. 1991. Toward understanding and measuring conditions
of trust: Evolution of a conditions of trust inventory. Journal of
Management, 17(3): 643-661. Cable, D.M. & Shane, S. 1997. A
prisoners dilemma approach to entrepreneur-venture capitalist
relationships. Academy of Management Review, 22(1): 142-176. Chen,
M., Fahr, J. & MacMillan, I. 1993. An exploration of the
expertness of outside informants. Academy of Management Journal,
36(6): 1614-1632.
Churchill, N. & Lewis, V. 1986. Bank lending to new and
growing enterprises. Journal of Business Venturing,1(2):
193-206.
-
Trusts Multi-Dimensional Form and Role, Page 30
Cohen, J. 1960. A coefficient of agreement for nominal scales.
Educational and Psychological Measurement, 20: 37-46.
Cummings, L.L. & Bromiley, P. 1996. The organizational trust
inventory (OTI): Development and validation. In R.M. Kramer &
T.R. Tyler (Eds.). Trust in Organizations: Frontiers of Theory and
Research: 302-330. Thousand Oaks, CA: Sage Publications.
Das, T.K. & Teng, B. 1998. Between trust and control:
Developing confidence in partner cooperation in alliances. Academy
of Management Review, 23(3): 491-512.
Donaldson, L. 1990. The ethereal hand: Organization economics
and management theory. Academy of Management Review, 15:
369-381.
Doz, Y.L. 1996. The evolution of cooperation in strategic
alliances: Initial conditions or learning processes? Strategic
Management Journal, 17: 55-83.
Dunkelberg, W., Scott, J. & Cox, E. 1984. Small business and
the value of bank-customer relationships. Journal of Bank Research,
14(5): 248-258.
Elsas, R. & Krahnen, J.P. 1998. Is relationship lending
special? Evidence from credit-file data in Germany. Journal of
Banking and Finance, 22: 1283-1316.
George, J.M. 1990. Personality, affect, and behavior in groups.
Journal of Applied Psychology, 75: 107-116. Goodman, P.S., Fichman,
M., Lerch, F.J. & Snyder, P. 1995. Customer-firm relationships,
involvement, and customer satisfaction. Academy of Management
Journal, 38(5): 1310-1324. Granovetter, M. 1985. Economic action
and social structure: The problem of embeddedness. American Journal
of Sociology, 78: 1360-1380.
Haines, G., Riding, A. & Thomas, R. 1991. Small business
bank shopping in Canada. Journal of Banking and Finance, 15:
1041-1056.
Harrison, R.T., Dibben, M.R. & Mason, C.M. 1997. The role of
trust in the informal investors investment decision: An exploratory
analysis. Entrepreneurship Theory and Practice, 21(4): 63-81.
Hawawini, G.A. & Swary, I. 1990. Mergers and Acquisitions in
the U.S. Banking Industry: Evidence from the Capital Market. New
York: Elsevier Science.
Hu, L. & Bentler, P.M. 1995. Evaluating Model Fit. In R.H.
Hoyle (Ed.). Structural Equation Modeling Concepts, Issues and
Applications: 76-99. Thousand Oaks, CA: Sage Publications.
James, L.R., Demaree, R.G. & Wolf, G. 1984. Estimating
within-group interrater reliability with and without response bias.
Journal of Applied Psychology, 69: 431-444.
-
Trusts Multi-Dimensional Form and Role, Page 31
James, L.R., Demaree, R.G. & Wolf, G. 1993. rwg: An
assessment of within-group interrater agreement. Journal of Applied
Psychology, 78: 306-309.
Jensen, M.C. & Meckling, W.H. 1976. Theory of the firm:
Managerial behavior, agency costs and ownership structure. Journal
of Financial Economics, 3: 305-360. Law, K.S., Wong, C. &
Mobley, W.H. 1998. Toward a taxonomy of multidimensional
constructs. Academy of Management Review, 23(4): 741-755. Lewicki,
R.J. & Bunker, B.B. 1996. Developing and maintaining trust in
work relationships. In R.M. Kramer & T.R. Tyler (Eds.). Trust
in Organizations: Frontiers of Theory and Research: 114-139.
Thousand Oaks, CA: Sage Publications. Maculuay, S. 1963.
Non-contractual relations in business: A preliminary study.
American Sociological Review: 55-67. Mason, C. & Harrison, R.
1999. Venture Capital: Rationale, Aims, and Scope. Venture Capital,
1:1-46.
Mayer, R.C., Davis, J.H. & Schoorman, D. 1995. An
integrative model of organizational trust. Academy of Management
Review, 20: 709-734.
McAllister, D. J. 1995. Affect and cognition based trust as
foundations for interpersonal cooperation in organizations. Academy
of Management Journal, 38: 24-59.
Neter, J., Wasserman, W. & Kunter, M.H. 1990. Applied
Statistical Models, 3rd Edition, Burr Ridge, IL: Richard D. Irwin,
Inc. Nohria, N. & Ghoshal, S. 1994. Differentiated fit and
shared values: Alternatives for managing headquarters-subsidiary
relations. Strategic Management Journal, 15: 491-502. Ouchi, W.G.
1980. Markets, bureaucracies, and clans. Administrative Science
Quarterly, 25: 129-141.
Perrow, C. 1981. Markets, hierarchies, and hegemony: A critique
of Chandler & Williamson. In A. Van de Ven & J. Joyce
(Eds.). Perspectives on Organization Design and Behavior: 347-370.
New York: Wiley.
Petersen, M. & Rajan, R. 1994. The benefits of firm-creditor
relationships: Evidence from small business data. Journal of
Finance, 49: 3-37. Porter, M.E. 1980. Competitive Strategy. New
York: Free Press.
Riding, A., Haines, G. & Thomas, R. 1994. The Canadian small
business-bank interface: A recursive model. Entrepreneurship Theory
and Practice, 18(4): 5-24.
-
Trusts Multi-Dimensional Form and Role, Page 32
Ring, P.S. & Van de Ven, A.H. 1994. Developmental processes
of cooperative inter-organizational relationships. Academy of
Management Review, 19(1): 90-118.
Robinson, S.L. & OLeary, A.M. 1998. Monkey see monkey do:
The influence of work groups on the antisocial behavior of
employees. Academy of Management Journal, 41(6): 658-672.
Rousseau, D.M. 1985. Issues of level in organizational research.
In B.M. Straw & L.L. Cummings (Eds.). Research in
Organizational Behavior, vol. 7: 1-37. Greenwich, CT: JAI
Press.
Rousseau, D.M., Sitkin, S.B., Burt, R.S. & Camerer C. 1998.
Not so different after all: A cross-discipline view of trust.
Academy of Management Review, 23(3): 405- 421.
Schnieder, B., Parkington, J.J. & Buxton, V.M. 1980.
Employee and customer perceptions of service in banks.
Administrative Science Quarterly, 25: 252-267.
Shapiro, S.P. 1987. The social control of impersonal trust.
American Journal of Sociology, 93: 623-658. Shapiro, D., Sheppard,
B.H. & Cheraskin, L. 1992. Business on a handshake. Negotiation
Journal, (8): 365-377. Sheppard, B.H. & Sherman, D.M. 1998. The
grammars of trust: A model and general implications. Academy of
Management Review, 23(3): 422-437.
Strahan, P.E. & Weston, J.P. 1998. Small business lending
and the changing structure of the banking industry. Journal of
Banking and Finance, 22: 821-845.
Stiegler, J.H. 1990. Structural model evaluation and
modification: An interval estimation approach. Multivariate
Behavioral Research, 25: 173-180.
Uzzi, B. 1999. Embeddedness in the making of financial capital:
How social relations and networks benefit firms seeking financing.
American Sociological Review, 64: 481-505.
Uzzi, B & Gillespie, J.J. 1999. Interfirm relationships and
the firms financial capital structure: The case of the middle
market. Research in the Sociology of Organizations, 16:
107-126.
Zaheer, A., McEvily, B. & Perrone, V. 1998. Does trust
matter? Exploring the effects of interorganizational and
interpersonal trust on performance, Organization Science, 9(2):
141-159.
Zucker, L.G. 1986. The production of trust: Institutional
sources of economic structure. In B.M. Straw and L.L. Cummings
(Eds.). Research in Organizational Behavior, vol. 8: 55-111,
Greenwich, CT: JAI Press.
-
Trusts Multi-Dimensional Form and Role, Page 33
TABLE 1 Results of Confirmatory Factor Analysis For The Three
Trust Basesa, b
Items Factor Loadings
Calculus-Based Trust We believe ____ complies with our
agreements because they know the benefits of compliance.
.79
We believe ____ complies with our agreements because they know
the economic costs of a damaged business reputation.
.70
We believe ____ complies with our agreements because they know
the economic benefits of an enhanced business reputation.
.80
We believe ____ complies with our agreements because it is in
their own self-interest to do so. .52 Knowledge-Based Trust From
past dealings, we know ____ is dependable. .85 From past dealings,
we can predict how ____ may act with fair accuracy. .78 From past
dealings, we know _____ has been open in describing their strengths
and weaknesses in past negotiations.
.62
Given ____s track records, we generally see little reason to
significantly doubt their competence.
.84
Identification-Based Trust We can freely share concerns and
problems about our company and know that ____ will be interested in
listening.
.90
We can freely share concerns and problems about our company and
know that ____ will respond constructively.
.89
We share common business values with ____. .78 We feel that ____
would act in a fashion consistent with what we would recommend
without prior discussion with us.
.66
Customer Satisfaction with Service The banks provision of
business/financial advice and other helpful information. .83 The
banks knowledge of our business. .91 The banks knowledge of the
local market/community. .83 The banks anticipation of our credit
and other financial needs. .82 Goodness-of-fit indices c2(df)
638.00 (98) p < .000 GFI = .92; NFI = .93; IFI = .94; TLI = .93;
CFI = .94; RMSEA = .080
a All factor loadings in this table are from the standardized
solution. b All factor loadings in this table are significant at
the p < .001.
-
Trusts Multi-Dimensional Form and Role, Page 34
TABLE 2 Results of Confirmatory Factor Analysis For Bank Level
Variablesa, b
Items Factor Loadings
Independent Variables Relational Strategy The bank encourages
bank managers to play a helpful and advisory roles with their small
business clients.
.67
The bank encourages bank managers to act with significant
flexibility in meeting small business client borrowing and other
financial needs.
.65
The bank focuses on improving bank-small business relationships
by selling products that fit a specific clients needs.
.77
The bank attempts to understand the business and marketplace of
its small business clients .73 Management Continuity One employee
or a small team of employees handles a given small business clients
accounts across various product and service lines.
.59
Employees with direct client interaction are rotated between
branches and/or departments on a regular basis.
.75
There is low employee turnover among employees with direct small
business customer interaction.
.72
Control Variables Formalization Management provides a
well-defined set of rules and procedures for interaction with small
business clients.
.89
To the extent possible, there are manuals that define the
courses of action to be taken under different situations
.66
Central management continuously monitors those employees that
interact with clients to ensure that rules and procedures are not
violated.
.69
Centralization Decision to grant small business loans are
generally made by: .94 Changes in fee structures or waivers of fees
for a small business client are generally made by: .89 Decisions
regarding changes in loan payment schedules or debt restructuring
for small business clients are generally made by:
.92
Goodness-of-fit indices c2(df) 99.10 (59) p < .001 GFI = .94;
NFI = .93; IFI = .97; TLI = .96; CFI = .97; RMSEA = .056
a All factor loadings in this are from the standardized
solution. b All factor loadings in this table are significant at
the p < .001.
-
Trusts Multi-Dimensional Form and Role, Page 35
TABLE 3 Descriptive Statistics and Correlations
Variable Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12 13 Small Firm
Level Variablesa
1. Sales 3.33 1.84 2. Employees 19.34 40.91 .49** 3. Firms Age
20.82 21.15 .19** .22** 4. Relation- ship Age
9.45 10.41 -.03 .04 .38**
5. Main Bankb .86 .35 -.06 -.06 .02 .16** 6. CBT 20.21 4.73
.09** .06 .00 -.04 .09** 7. KBT 23.16 3.96 .03 .03 .06 .06 .17**
.38** 8. IBT 21.90 4.79 .09** .07 .06 .00 .16** .40** .77** 9.
Satisfaction 21.60 5.12 .07* .09* .01 .01 .13** .32** .67** .74**
Bank Level Variablesc
10. Assetsd 5.84 .90 .20** .14** .00 -.09** .06 .03 -.01 .02 .01
11. Formality 12.17 1.60 .16** .07* .04 -.07* -.03 -.02 -.05 -.06
-.12* .13 12. Centralization 12.43 3.34 .15** .10** -.03 -.09**
-.01 .05 .07 .11** .15** .48* -.14 13. Relational Strategy
21.74 1.98 .14** .11** -.05 -.11** .06 .08* .15** .14** .07* .12
.33 .22
14. Continuity 16.16 1.41 -.01 .02 .03 .07 .14** .11** .17**
.14** .19** .12 .20 .31 .40 a n = 867 b Coded as dummy variable
with banking institution is primary financial institution = 1, not
primary financial institution = 0. c n = 22 d Logarithm of total
assets. * p < .05 ** p < .01
-
Trusts Multi-Dimensional Form and Role, Page 36
TABLE 4 Hierarchical Regression Analysis Results for CBT, KBT
and IBTa
CBT KBT IBT
Variables Step 1 Step 2 Step 3 Step 1 Step 2 Step 3 Step 4 Step
1 Step 2 Step 3 Step 4
PAb .08 .05 .05 .16** .19** .19** .17** .13* .15* .15* .01 MO b
.08 .06 .09 .16** .16** .19*** .16** .11* .11* .11* .00 CTb .04
.11* .10* -.01 .06 .04 .01 .00 .06 .04 .00 Bank Sizec .02 .07 .03
-.05 .01 -.04 -.05 -.04 .01 -.05 -.02 Formalization .01 -.07 -.05
.07 .00 .03 .04 .02 -.04 .00 -.02 Centralization .00 -.10+ -.08 .05
-.07 -.05 -.02 .07 -.02 .00 .05 Firm Sales .09* .08+ .08* .04 .03
.04 .01 .09* .08* .09* .06* Firm Employees .02 .02 .01 .02 .00 .00
-.01 .02 .01 .01 .01 Firm Age -.01 -.02 -.01 .05 .05 .05 .05 .06
.05 .06 .02
Relationship Age -.06 -.05 -.05 -.01 .01 .00 .02 -.06 -.04 -.05
-.04+ Main Bankd .11** .10** .10** .17*** .15*** .15*** .12***
.17*** .15*** .16*** .04 Relational Strategy .05 .00 .17*** .10*
.10** .14*** .05 -.02 Continuity .14** .14** .09* .09* .04 .07 .07
-.01 Relational X Continuity -.08+ -.11** -.09* -.14** -.05+ CBT
.35*** .11***
KBT .72***
D R2 .03* .01** .00 .06*** .03*** .01** .12*** .06*** .02***
.01** .53*** R2 .03 .04 .04 .06 .08 .09 .21 .06 .08 .09 .62
Adjusted R2 .01 .03 .03 .04 .07 .08 .19 .05 .06 .07 .61
F 2.00* 2.68*** 2.74*** 4.55*** 5.99*** 6.09*** 14.80*** 4.86***
5.51*** 5.87*** 85.52*** a Betas are standardized regression
coefficients. bRespective US State Coded as = 1, others = 0
cLogarithm of total assets. dCoded as dummy variable with banking
institution is primary financial institution = 1, not primary
financial institution = 0. + p < .10 * p < .05 ** p < .01
*** p < .001
-
Trusts Multi-Dimensional Form and Role, Page 37
TABLE 5 Hierarchical Regression Analysis Results for Customer
Satisfactiona
Test for CBT Test for KBT Test for IBT
Variables Step 1 Step 2 Step 3 Step 1 Step 2 Step 3 Step 1 Step
2 Step 3
PAb .19** .06 .06 .19** .08+ .06 .19** .07 .06 MO b .16** .03
.03 .16** .05 .03 .16** .04 .03 CTb .07 .03 .03 .07 .04 .03 .07 .03
.03 Bank Sizec -.05 -.01 -.01 -.05 -.02 -.01 -.05 -.03 -.01
Formalization -.03 -.04 -.04 -.03 -.03 -.04 -.03 -.04 -.04
Centralization .04 .05 .05 .04 .04 .05 .04 .07+ .05 Firm Sales .07+
.02 .02 .07+ .01 .02 .07+ .04 .02 Firm Employees .05 .05+ .05+ .05
.05+ .05+ .05 .05+ .05+ Firm Age -.01 -.05* -.05* -.01 -.05+ -.05*
-.01 -.04 -.05*
Relationship Age -.02 .01 .01 -.02 .02 .01 -.02 -.02 .01 Main
Bankd .13*** .01 .01 .13*** .01 .01 .13*** .02 .01 Relational
Strategy -.03 -.08* -.08* -.03 -.07* -.08* -.03 -.09* -.08*
Continuity .13** .07* .07* .13** .07* .07* .13** .06+ .07*
Relational X Continuity -.16*** -.06+ -.06+ -.16*** -.06* -.06+
-.16*** -.08* -.06+ CBT .00 .02 .00 .06* .00
KBT .25*** .25*** .25*** .63*** .25***
IBT .53*** .53*** .70*** .53*** .53***
D R2 .10*** .49*** .00 .10 .47*** .02*** .10*** .39*** .10*** R2
.10 .59 .59 .10 .57 .59 .10 .49 .59 Adjusted R2 .09 .58 .58 .09 .56
.58 .09 .48 .58
F 7.02*** 76.76*** 72.16*** 7.02*** 69.57*** 72.16*** 7.02***
50.12*** 72.16*** a Betas are standardized regression coefficients.
bRespective US State Coded as = 1, others = 0 cLogarithm of total
assets. dCoded as dummy variable banking institution is primary
financial institution = 1, otherwise = 0. + p < .10 * p < .05
** p < .01 *** p < .001
-
Trusts Multi-Dimensional Form and Role, Page 38
KBT & High Continuity
IBT & Low Continuity
KBT & Low Continuity
IBT & High Continuity
High
Low
Trust
Figure 1 Interaction Effects of Management Continuity and
Relational Strategy on KBT and IBT
Low
High
Relational Strategy