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Trust and quality uncertainty in global value chains

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  • Cumming, Douglas
  • Ge, Ying
  • Lai, Huiwen

Abstract

The globalization of production and trade has significantly increased quality uncertainty faced by the consumers. This study uses a large firm-product-country level panel data involving 2922 multinational enterprise affiliates producing in China and exporting to 25 countries to investigate the role of trust in quality evaluation of foreign products. Our methods account for quality uncertainty interacted with trust, as well as imported intermediate inputs. The data indicate that consumers are willing to pay a price premium for their trust regarding the multinational enterprise headquarter countries. This “trust premium” is more prominent for the products with higher quality uncertainty. The data further indicate that the consumers offer high price for the products using imported intermediate inputs sourced from high-trust countries. Overall, our analysis highlights that trust plays an important role in the consumers’ quality evaluation in global value chains.

Suggested Citation

  • Cumming, Douglas & Ge, Ying & Lai, Huiwen, 2020. "Trust and quality uncertainty in global value chains," Journal of Multinational Financial Management, Elsevier, vol. 57.
  • Handle: RePEc:eee:mulfin:v:57-58:y:2020:i::s1042444x20300517
    DOI: 10.1016/j.mulfin.2020.100662
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    More about this item

    Keywords

    Trust; Premium; Global value chain;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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