Social trust and firm innovation*

Ghoul, Sadok El; Gong, Zhaoran; Guedhami, Omrane; Hou, Fangfang; Tong, Wei

doi:10.1016/j.intfin.2023.101745

Cited by 9 publications

(4 citation statements)

References 73 publications

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“…Specifically, the imbalance is reflected in the vastly more research examining how formal institution affects the entry mode choice of foreign subsidiary (Chung et al ., 2016; Lu et al ., 2018a; Sartor and Beamish, 2018), while ignoring social trust, an important informal institution that can influence firm decisions. Responds to the calls, this paper complements the existing literature on informal institutions and corporate decision-making (Ding et al ., 2023; El Ghoul et al ., 2023; Gu et al ., 2022; Lyu et al ., 2023; Shahab et al ., 2023) by showing how social trust in a host country can influence entry mode choice of foreign subsidiary. The results show that social trust can influence entry mode choice by reducing transaction costs and facilitating information sharing.…”

Section: Discussionmentioning

confidence: 99%

“…Arrow, 1972;Fukuyama, 1995;Knack and Keefer, 1997), a few literature examines the effects of social trust on strategic decisions at the corporate level. Although limited, some studies examine how social trust affects internationalization, international contracting, corporate social responsibility, corporate innovation, corporate financial asset holdings, firm's internal control extensiveness and foreign subsidiary staffing (Brockman et al, 2022;Chen et al, 2021;Chen and Wu, 2023;Ding et al, 2023;El Ghoul et al, 2023;Gaur et al, 2022;Gu et al, 2022;Liu et al, 2022;Lyu et al, 2023), while ignoring entry mode choice, an important firm's foreign investment strategy, that can influence subsidiary performance. This paper explores the effects of social trust on entry mode choice and further enriches the literature on the micro-level effect of social trust.…”

Section: Theoretical Contributionsmentioning

confidence: 99%

“…Second, this study contributes to the growing research that seeks to identify the effects of social trust on firm decisions. While prior studies have focused on corporate misconduct, internationalization, environmental performance, corporate social responsibility, corporate innovation, corporate financial asset holdings, firm's internal control extensiveness and foreign subsidiary staffing (Chen et al ., 2021; Chen and Wu, 2023; Dong et al ., 2018; Ding et al ., 2023; El Ghoul et al ., 2023; Gu et al ., 2022; Lyu et al ., 2023; Gaur et al ., 2022; Shahab et al ., 2023), few studies have explored how social trust affects entry mode choice. This study explores the relationship between social trust and entry mode choice.…”

Section: Introductionmentioning

confidence: 99%

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Foreign subsidiary performance: social trust–entry fit

Yu,

Yi,

Shen

2023

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PurposeThis paper aims to study whether the adoption of an entry mode that fits the social trust level contributes to the improvement of foreign subsidiary performance.Design/methodology/approachThe authors used the Probit model, linear regression, strategic fit approach and instrumental variable regression. The sample was made up of 11,095 observations of Chinese multinational enterprises' foreign subsidiaries in 54 countries from 2005 to 2020.FindingsThe results suggest that a host country with a high level of social trust results in fewer difficulties for enterprises in gaining legitimacy, thus foreign subsidiaries are more likely to select the wholly owned entry mode. The results also show that the effect is contingent on the formal institutions of host countries. The results of the mechanism test suggest that social trust influences subsidiaries' entry mode choice by reducing information asymmetry, costs and uncertainty risks. This study further finds that selecting a fit entry mode based on social trust level substantially increases foreign subsidiary performance and this effect is more significant when multinational enterprises (MNEs) are state-owned enterprises (SOEs).Research limitations/implicationsThe main limitation of this paper is its only focus on foreign subsidiaries of Chinese MNEs, which may limit the generalizability of research findings.Originality/valueThis paper responds to the call for conducting more research on informal institutions. Findings highlight the critical role of informal institutions in helping foreign subsidiaries in gaining legitimacy in host countries and the essentialness of selecting a fit entry mode based on the informal institutions of host countries for the development of foreign subsidiaries.

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Section: Discussionmentioning

confidence: 99%

Section: Theoretical Contributionsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Foreign subsidiary performance: social trust–entry fit

Yu,

Yi,

Shen

2023

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“…Innovation, as a high‐input, high‐risk, long‐cycle investment (Hall, 2002), necessitates firms with extensive resource endowments and effective governance structures. The acquisition and utilization of innovation resources depend on the trust between the enterprise and resource owners (El Ghoul et al, 2023; Liu et al, 2010; Maurer, 2010). The efficiency of governance structures is also predicated on the premise that each party involved in corporate contracts does not violate moral ethics (Jensen & Meckling, 1976; Martínez et al, 2020).…”

Section: Theoretical Backgroundsmentioning

confidence: 99%

The impact of environmental, social, and governance ratings on corporate innovation: From the perspective of informal institutions

Zhu,

Li,

Wang

2024

Manage Decis Econ

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The significance of rating events in capital markets has garnered considerable attention from investors, experts, and academics, with third‐party rating agencies being one of the topics. We focus on the impact of environmental, social, and governance (ESG) ratings on corporate innovation and confirm a positive relationship. We also believe that ESG ratings play a governance role as informal institutions in stimulating corporate innovation. The efficacy of ESG ratings in promoting corporate innovation is dependent on a favorable information environment that is devoid of negative influences. We confirm the synergistic effect of ESG ratings with other informal institutions and the substitution effect with formal institutions.

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