Is confidence in major companies rooted in generalized social trust, or regulatory quality, or both?

Abstract

AbstractWhile confidence in the business sector is crucial for well-functioning markets, there is surprisingly little empirical work on its sources. Available research recognizes generalized social trust and macroeconomic performance (especially unemployment and economic growth) as major forces explaining confidence in institutions and organizations in general. By assuming that confidence in companies hinges on rules, formal procedures, and practices that shape how organizations function, economic regulation is frequently advocated to foster confidence in companies, not least as it is supposed to reduce the scope for opportunistic behavior. Based on individual-level data from World Values Survey/European Values studies and economic regulation data from the Economic Freedom of the World project we investigate statistical associations of confidence in major companies with generalized social trust and macroeconomic performance as well as the intensity and quality of business regulation. From an economic policy perspective our findings suggest that confidence in the business sector can be facilitated by an implicit guarantee from governments of fair and impartial treatment.