Is It Worth Trusting Your Manager?

Abstract: Researchers have long been interested in the role of top managers in organizations. The existing research, however, has largely focused on the individual characteristics of managers and paid less attention to the social aspects of the relationships between managers and owners. In this paper, we focus one such social aspect—the asymmetry of trust between an owner and a manager. We argue that managers who are under-trusted relative to their own levels of trust will feel frustrated and disappointed, leading to low performance of their firms, whereas over-trust would not necessarily have a negative impact on performance. We demonstrate that under-trusted managers are indeed associated with lower firm performance. The negative correlation is particularly strong when communication between an owner and a manager is expected to be more difficult and when the owners and managers come from similar cultures. Conversely, equal trust and over-trust have no negative association with the performance of firms with hired managers.