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Chair–CEO trust and firm performance

Author

Listed:
  • Jiayi Zheng
  • Yushu Zhu

Abstract

This study investigates whether trust between a corporation’s board chair and the CEO affects firm performance. After using a unique survey data set of regional trustworthiness from China to measure this trust, we find a positive relationship between trust and the performance of Chinese companies from 2000 to 2016. Additional test results suggest that the relationship is causal. Further results show that the positive trust-performance effect is more evident for firms with greater advisory needs and boards that can deliver high-quality advice. Finally, we find supporting evidence to our conjecture that the Chair–CEO trust increases firm value by improving the board advisory results, including value-adding decisions of R&D and merger and acquisition. JEL Classification: G32, G34, G41

Suggested Citation

  • Jiayi Zheng & Yushu Zhu, 2022. "Chair–CEO trust and firm performance," Australian Journal of Management, Australian School of Business, vol. 47(1), pages 163-198, February.
    • Handle: RePEc:sae:ausman:v:47:y:2022:i:1:p:163-198
    DOI: 10.1177/0312896220981109
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    More about this item

    Keywords

    Advisory role; firm performance; merger and acquisition; R&D; social trust;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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