Journal of Business Research 84 (2018) 34–45

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Journal of Business Research

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A model for the role of trust in firm level performance: The case of family
businesses
⁎
Mathew R. Allena, , Bradley A. Georgea, James H. Davisb
a
Babson College, United States
b
Utah State University, John M. Huntsman School of Business, United States

AR TIC LE I NF O AB S TR ACT

Keywords: We explore the process through which trust within family firm leadership contributes to firm level performance.
Trust Specifically, we develop a model describing the underlying process through which trust influences commitment
Family business
and in turn organizational performance. The effect of trust on the performance of family businesses is further
Relational governance
understood by addressing the role of family member status and generation in moderating the relationship be-
Commitment
tween trust and commitment. We test this model using longitudinal responses from top managers in family
businesses. Results indicate that the effect of trust on performance takes place through commitment with family
member status moderating the relationship.

1. Introduction
For management researchers, family businesses represent a unique
context from the standpoint of governance, management, and decision
making as power and ownership are concentrated within the family
(Schulze, Lubatkin, Dino, & Buchholtz, 2001). Furthermore, research
indicates that this involvement of family in the management of family
businesses has important strategic implications with family businesses
outperforming their non-family counterparts in some circumstances
(Anderson & Reeb, 2003). While research comparing the differences
between family and non-family businesses relative to performance is
interesting, it is essential for researchers to understand the unique
structures and processes within family businesses and how those con-
tribute to performance.
Researchers have argued that performance advantages of family
businesses are tied to their closely held nature where both ownership
and control are often embodied in the same individual or family
(Chrisman, Chua, & Litz, 2004; González-Cruz & Cruz-Ros, 2016).
Specifically, researchers have pointed to family firm governance as one
source of competitive advantage leading to these higher levels of per-
formance (Carney, 2005). This strategic benefit is the result of family
businesses relying on a more personalized form of governance based on
relationships, family influence and most importantly, alignment of in-
terests between top decision makers and owners (Carney, 2005; Steier,
2001). This relational structure has been shown to contribute to in-
creased levels of commitment, cooperation, and flexibility as well as
reduced transaction costs leading to higher performance (Carson,
Madhok, & Wu, 2006; Jeffries & Reed, 2000; Poppo, Zhou, & Zenger,
2008; Uhlaner, Floren, & Geerlings, 2007).
This reliance on relational governance and high levels of alignment
between leaders in a family business raises questions about the im-
portance of trust in the family business context. Defined as a willingness
to be vulnerable and place oneself at risk in relation to another (Mayer,
Davis, & Schoorman, 1995), trust has been described as a “lubricant”
facilitating relationships especially in the face of risks and uncertainties
(Cruz, Gomez-Mejia, & Becerra, 2010, p. 79). Where market structures
and organizational dynamics (bureaucracy and clan) control manage-
rial behavior; trustee exposure, risk and vulnerability is controlled and
trust is not needed (Ouchi, 1980). Specifically trust matters when risk-
taking in relationships is prevalent such as when establishing or con-
tinuing a relationship with another party exposes one to risks related to
that relationship (Mayer et al., 1995). In the case of family business,
researchers have argued that because of the tight nature of the re-
lationships and the high levels of alignment between decision makers,
trust might matter less in the family business context (Schulze et al.,
2001). While the importance of trust and performance among top lea-
ders of non-family businesses is well established (Carmeli, Tishler, &
Edmondson, 2012; Olson, Parayitam, & Bao, 2007), the role of trust
among leaders in family businesses is less clear (Cruz et al., 2010).
In this manuscript we seek to clarify the role of trust in the top
management team of family businesses and examine how it may sub-
sequently play a role in family business performance. By building on
work arguing that altruism within families can lead to alignment re-
garding decision making in family businesses (Schulze, Lubatkin, &

⁎
Corresponding author.
E-mail addresses: mallen4@babson.edu (M.R. Allen), bgeorge@babson.edu (B.A. George), j.davis@usu.edu (J.H. Davis).

https://doi.org/10.1016/j.jbusres.2017.10.048
Received 15 December 2016; Received in revised form 5 August 2017; Accepted 21 October 2017
Available online 12 November 2017
0148-2963/ © 2017 Elsevier Inc. All rights reserved.
M.R. Allen et al. Journal of Business Research 84 (2018) 34–45

35
M.R. Allen et al.
Dino, 2003) we develop theoretical arguments regarding the im-
portance of trust in this context. Contrary to traditional assumptions,
we argue that risk taking in relationships does indeed exist in family
business leadership creating a need for trust. We then explore the
process through which trust contributes to firm level performance in
family businesses and argue that this relationship takes place through
the impact of trust on top management team members' willingness to
commit to the organization. We further develop the trust to perfor-
mance model in family businesses by outlining how contextual vari-
ables, unique to the family business form, namely generation and fa-
mily member status, impact the extent to which trust influences the
commitment of top management team members and in turn perfor-
mance. The testing of this process, including context specific variables
that might influence the relationship, represents an important con-
tribution to our understanding of family business performance and
further extends our knowledge of trust in an extremely relevant area of
research.
2. Theory development and hypotheses
2.1. Family businesses and agency risks
An agency relationship exists when one or more persons (the prin-
cipal(s)) hire another person (the agent) to perform a service on their
behalf, typically involving delegation of decision making authority
(Jensen & Meckling, 1976). This introduces agency risks and associated
costs due to the fact that the interests of the agent may be different from
those of the principal, causing the principal to incur residual losses as a
result of the differing interests or monitoring costs to ensure that the
agent acts in a manner consistent with the principal's interests. His-
torically, researchers have argued that the family business context, with
its owner-managed model of governance, benefits from reduced gov-
ernance costs (Bauweraerts & Colot, 2017). These reduced costs are
argued to be based on lower levels of opportunism driven by altruism,
strong familial relationships and significant overlap between ownership
and management (Chrisman et al., 2004; Miller, Le Breton-Miller, &
Scholnick, 2008). Indeed, primary agency theory research was focused
on principal agent relationships where high levels of distance existed
between the two parties (Jensen & Meckling, 1976). In family busi-
nesses, there is significant overlap between ownership and management
and often family members play both roles (Fiegener, 2010; González-
Cruz & Cruz-Ros, 2016). In addition, researchers have theorized that
strong family relationships may lead to feelings of altruism and sig-
nificant alignment between leaders (Lubatkin, Schulze, Ling, & Dino,
2005).
Theoretically, however, it seems that the family business context
does indeed suffer from unique governance issues and that these issues
might be ignored in traditional agency models (Chrisman, Chua,
Kellermanns, & Chang, 2007; Jensen & Meckling, 1976; Lubatkin, Ling,
& Schulze, 2007). Specifically, labor pool inefficiencies stemming from
operating with a reduced labor pool, the potential for self-control issues
resulting from the unique tastes and preferences of individual leaders
and a lack of market driven external controls all combine to create a set
of unique agency issues specific to family businesses (Schulze et al.,
2001; Schulze, Lubatkin, & Dino, 2000). While these agency issues are
unique to family businesses and differ significantly from more tradi-
tional agency issues, they do create significant risks for family business
leaders in their relationship to the family business. These unique risks
present a situation where trust is needed to overcome potential risks
and allow leaders to commit to the organization in spite of the inherent
risks.
2.1.1. Reduced labor pool
An agency risk that is somewhat unique to family business is related
to a reduced labor pool. It is typically assumed that when an agent is
hired, they are chosen from the pool of highly qualified candidates.
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Journal of Business Research 84 (2018) 34–45
However, if you restrict this pool, you introduce another risk into the
principal-agent relationship. Family businesses can face a reduced labor
pool for several reasons. First, family businesses may lack the resources
necessary to provide adequate compensation in order to attract and
retain top talent (Schulze et al., 2001). This is particularly salient when
looking at equity compensation, a common method of linking com-
pensation with performance outcomes. Because family businesses seek
to maintain control within the family they are very reluctant to dis-
tribute any equity outside the core family including the use of equity
based compensation (Schulze et al., 2000). The result is that family
firms could be less able to compete for top talent.
In addition to a desire to retain ownership within the family, family
businesses have also demonstrated a preference to maintain decision
making within the family by placing family members in high-level
positions (Fiegener, 2010). This can result in a perception among non-
family job seekers that advancement opportunities within family firms
will be restricted based on this need to fill top positions with family
members further reducing the ability of family firms to compete for top
talent.
Finally, because families often desire to fill top positions with family
members, they are forced to deal with a significantly reduced labor pool
in selecting family leadership. When families focus on only family
members for some or all top positions in the business, they are dealing
with an extremely constrained labor pool and the probability of finding
a competent family member for the position can be reduced (Schulze
et al., 2000).
All of these combine to create a situation in family firms where the
possibility of leadership, be it family or non-family, has a higher like-
lihood of either lacking the necessary skills or at a minimum possessing
subpar skills and experience relative to non-family firms. While not a
traditional agency issue, the uncertainty this causes poses significant
risk for members of top management working in family firms making it
difficult for top leaders to have confidence in each other's abilities thus
introducing another potential need for monitoring or possibility for
residual losses.
2.1.2. Self-control
In addition to labor pool inefficiencies, family firms also face agency
risks associated with self-control (Schulze et al., 2001). While mem-
bership in the family or overlap between ownership and management
due to family involvement might be higher in family firms, this does not
preclude individual members of top leadership from acting in a way
that is detrimental to the whole or even to themselves. Specifically,
family business researchers have shown that in addition to preserving
or maintaining economic wealth, family businesses also focus on pre-
servation of socioemotional wealth (Gómez-Mejía, Haynes, Núñez-
Nickel, Jacobson, & Moyano-Fuentes, 2007). Referring to the non-
economic benefits provided by private ownership and control such as
status, prestige or political influence, family businesses have been
shown to focus on preserving family control even to the disadvantage of
their efforts to build economic wealth (Gómez-Mejía et al., 2007). Thus,
even in a situation where economic goals are aligned among top leaders
within a family firm, individual leaders with differing preferences re-
garding non-economic benefits can still make decisions that are not in
their own or the firm's best interests. This would be to the disadvantage
of leaders who were more concerned with the financial benefits and had
less interest in these non-economic benefits. In particular, this focus and
the potential to negatively impact non-family leaders who would not
see the same benefits from a focus on preserving socioemotional wealth.
This tendency for family businesses to pursue socioemotional wealth
creates agency risk for leaders in family businesses. Not knowing if
individual leaders are making decisions in the best interest of the firm
creates uncertainty making interactions among top managers and, in
turn, execution, more difficult. As with other agency issues, this in-
troduces the potential need for monitoring the agent or represents a
possible residual loss from the perspective of the family if the agent and
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37
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principal have differing objectives.
2.1.3. Market control
In addition to labor pool inefficiencies and self-control issues among
top managers, family businesses experience additional agency risk and
uncertainty due to a lack of external market controls (Schulze et al.,
2001). In publicly traded organizations at least some of the risk posed
by potential agency issues caused by the separation of management
from ownership is mitigated by market based controls (Jensen &
Meckling, 1976; Schulze et al., 2003). Public firms are required to meet
stringent regulations regarding structure, controls, and reporting
(Schulze et al., 2001).
Even if individual members of top management attempted to make
decisions that were detrimental to the firm or other members of top
management in non-family firms, the scrutiny provided by this reg-
ulation would make it more difficult. In addition, where ownership is
dispersed as in the case of public firms, the fear of market reprisals in
the form of a hostile takeover or other forms of market based punish-
ment is often enough to keep organizations in line (Jensen & Meckling,
1976).
Family businesses, however, are most often closely held with a
controlling ownership in the hands a few or even one family member
1
(Miller, Le Breton-Miller, & Lester, 2010). As a result, privately held
family businesses are not required to meet the same regulatory ob-
ligations placed on publicly trading companies. In addition, the con-
centration of ownership among so few also makes market based con-
trols such as a hostile takeover resulting from poor performance or
decision making almost impossible. Some of this lack of direct market
control could potentially be mitigated through indirect control by
customers, suppliers or other stakeholders, but the lack of direct market
and regulatory based controls can lead to increased risk and uncertainty
for leaders in family businesses that are privately held. Top manage-
ment teams in family businesses cannot depend on these market con-
trols to inhibit self-serving decision making on the part of individual
members of the team. The absence of this traditional mechanism for
controlling agency risk further complicates the ability of members of
the leadership team to fully engage in their roles within the organiza-
tion and possibly harming the performance of the organization.
Clearly family businesses suffer from similar if somewhat different
problems related to uncertainty and agency costs compared to non-fa-
mily firms (Chrisman et al., 2007). These risks associated with the fa-
mily business form create significant uncertainty for top leaders. Doubts
regarding the overall ability of the top management team, fear that
individual family leaders might pursue non-economic outcomes to the
detriment of the organization and an inability to depend on external
regulatory or market controls represent significant risks for individual
leaders working in this environment. These risks and uncertainties can
limit the ability of individual leaders as they seek to work with other
members of the top management team in carrying out their responsi-
bilities which can, in turn, impact performance.
2.2. Trust and agency risks in family businesses
Trust has been described as a willingness to put oneself at risk or be
vulnerable in relation to another group or individual (Mayer et al.,
1995; Sundaramurthy, 2008). Thus trust is essential to allow parties to
work together on behalf of the organization, acting as if the future were
more certain than current risks and uncertainties might indicate (Poppo
& Zenger, 2002; Uhlaner et al., 2007). In this way trust acts as a lu-
bricant allowing individual members to focus on strategic tasks in spite
1
While the majority of family owned businesses are privately held and controlled by
owning families, many are also publicly traded. It should be noted that the agency issues
associated with a lack of market controls would only be present as discussed here in
privately held family businesses.
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Journal of Business Research 84 (2018) 34–45
of the inherent risks and uncertainties (Jeffries & Reed, 2000), reducing
the need for more extensive monitoring and other costly activities often
associated with agency risks. Mayer and Gavin (2005) for example,
found that trust was directly related to individual employees' ability to
focus on the needs of the organization through organization citizenship
behaviors in spite of a lack of knowledge regarding the behavior of
organization leadership. Conversely, a lack of trust in the same situa-
tion was related to increased levels of monitoring of leaders on the part
of the employees resulting in lower levels of employee performance (Hu
& Wang, 2014; Mayer & Gavin, 2005). Thus, in the absence of trust,
employees are not willing to engage in positive behaviors and instead
revert to more contractually based governance activities such as mon-
itoring (Chen, Eberly, Chiang, Farh, & Cheng, 2014; Mayer & Gavin,
2005).
Researchers have demonstrated that trust in another individual,
group or organization is based on perceptions that the person engaging
in trust (trustor) has of the person or group who is to be trusted
(trustee) (Schoorman, Mayer, & Davis, 2007). Specifically, the trust on
the part of the trustor in the trustee is driven by the perception of three
essential characteristics that the trustor sees in the trustee: ability,
benevolence and integrity (Mayer et al., 1995).
Ability refers to the specific skills, abilities and experience possessed
by the trustee. In order to allow oneself to be vulnerable in relationship
to another person, group or organization, there has to be some in-
dication that that person, group or organization possesses the right
knowledge or ability to accomplish the task at hand whatever that
might be (Schoorman et al., 2007). For example, trust in a top manager
depends at least in part on the perceptions of the trustor that the
manager has the ability to accomplish what the role requires. In this
way, ability, as a driver of trust is very context specific and depends on
the needs of the given situation (Mayer et al., 1995).
Because family businesses can deal with a reduced labor pool when
choosing top leaders both within and outside the family, leaders in
family businesses face significant risks and uncertainty regarding the
competence of other firm leaders (Schulze et al., 2001). This creates
risks and uncertainties for leaders within this context as doubt about
the ability of other leaders increases the need for monitoring or the
potential for decisions that negatively impact the organization. Trust
then becomes the lubricant that allows team members to effectively
function within the organization in spite of these risks. Specifically, as
members of the top management team perceive the right ability in their
fellow team members, they are able to trust them and allow themselves
to be vulnerable to the risks associated with a reduced labor pool.
Benevolence refers to a desire on the part of the trustee to act in a
way that is beneficial to the trustor regardless of personal or economic
benefits (Mayer et al., 1995). This means that the trustee must de-
monstrate a willingness to act in the best interest of the trustor even if
there is no direct benefit to the trustee in doing so. An example of
benevolence on the part of a business leader would be a manager who is
willing to stand up for an employee even when doing so puts him/her at
personal risk.
Family business leaders face significant risks related to self-control
among other team members (Schulze et al., 2003). This is driven, in
part, by the tendency of family firm leaders to focus on the preservation
of non-economic benefits often referred to as socioemotional wealth
(Berrone, Cruz, Gomez-Mejia, & Larraza-Kintana, 2010) even when
these decisions can hurt the organization economically (Gomez-Mejia,
Makri, & Kintana, 2010). This can create significant risks for non-family
leaders as they do not experience the benefits of ownership that family
members do. To a lesser extent, this creates risks even for individual
family members as well. As mentioned previously, family businesses
have been shown to preserve family control even when this pursuit
might not lead to optimal financial outcomes for the business (Gómez-
Mejía et al., 2007). While this action might be perceived as beneficial to
the family generally, it does not account for individual preferences
regarding desired benefits among family members. It is likely that
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39
M.R. Allen et al.
individual family members will differ in their preference for economic
vs. non-economic benefits resulting from family ownership. In this si-
tuation individual family leaders would be more or less interested in the
benefits resulting from control and thus might prefer the pursuit of
economic benefits to a greater or lesser extent. These differences in
individual preferences would lead to potential risks even among family
members as leaders pursue decisions that match their own individual
benefits preference.
In this way, top leaders in family businesses, both family members
and non-family members, face risks and uncertainty regarding the
motives of other team members creating risk in the relationships among
members of the top management team. Trust again allows members to
engage in spite of these risks. As individual members of the top man-
agement team perceive benevolence in other members of the team, they
recognize that their peers will be willing to help each other out and act
in ways that are beneficial to the group in spite of personal risks or
personal needs and preferences. This again allows individual team
members to place themselves at risk by focusing on what matters rather
than watching their backs or seeking to monitor the behavior of other
members of the team and this, in spite of the uncertainties presented by
self-control issues (Schoorman et al., 2007).
Integrity in the trust relationship occurs when the trustor perceives
that the trustee adheres to a set of principles and that the principles are
acceptable to the trustor (Mayer et al., 1995). This implies that the
trustor perceives that the trustee will “do the right thing” regardless of
circumstances. An example would be where an employee has con-
fidence that her manager will always act within the boundaries of the
law regardless of personal preferences or desires. In addition, trust has
been found to matter regardless of whether the trustor – trustee re-
lationship is superior to subordinate or subordinate to superior in-
dicating that within a top management team, trust will play a role re-
gardless of hierarchy (Brower, Lester, Korsgaard, & Dineen, 2009).
Traditionally, firms often rely on external and market controls to
ensure that the agent, or trustee, will act in a way that is acceptable to
the trustor. Because privately held family firms are not compelled
through regulation or fear of market reprisals, there is less of a guar-
antee that members of the top management team will act in a way that
is beneficial to the organization rather than to themselves (Schulze
et al., 2001). This presents significant risk for other members of top
management. Trust allows family business leaders to function in their
roles in spite of these uncertainties. As individual leaders perceive high
levels of integrity in other team members, they are able to trust that
team members will act according to a set of principles regardless of
preferences or needs and more importantly, regardless of a lack of ex-
ternal controls that might otherwise force them to adhere to specific
principles.
While trust might in some circumstances be driven primarily by one
or the other of these three components (Cruz et al., 2010), it is generally
understood that all three are necessary for a trustor to be willing to
make themselves vulnerable in relation to another (Schoorman et al.,
2007). These three underlying drivers of trust can be applied to the
specific agency risks of a reduced labor pool, self-control issues and a
lack of market controls often found in family businesses.
Based on the above discussion, trust will act as a lubricant to help
members of the top management team to overcome the risks associated
with the family business form. This occurs as perceptions of ability,
benevolence and integrity help members of the top management team
get past issues of a reduce labor pool, the potential for self-control is-
sues and a lack of market controls respectively.
2.3. Trust and performance
The upper echelon perspective argues that organizational action and
behavior is a reflection of the top management team, its attitudes and
cognitive biases (Hambrick & Mason, 1984). This is because top man-
agers have the most influence on strategic decisions as well as the
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Journal of Business Research 84 (2018) 34–45
overall tone and culture of the organization (Hambrick & Mason, 1984).
While originally focused on larger corporate organizations, this per-
spective has been extended to include family businesses as well
(Gartner, Shaver, Gatewood, & Katz, 1994; Ling & Kellermanns, 2010;
Sharma & Irving, 2005). Because top managers exert such extensive
influence on the actions of organizations including family businesses,
we argue that the trust within this group will have a significant impact
on performance.
Based on the above discussion, leaders in family businesses face
significant agency-type uncertainties. Members of top management
must make decisions, develop and execute strategies and work together
as a team all under conditions of uncertainty driven by the agency risks
discussed above. Trust in the top management team on the part of team
members represents a willingness to be vulnerable in spite of the risks
(Mayer et al., 1995). We argue that as trust increases, the ability of top
management to work together, stay focused, make informed decisions,
commit themselves to the organization and apply resources to the op-
eration of the business rather than the oversight of each other will also
increase. Indeed, research has demonstrated that schisms among the
top management team in family businesses, often the result of a lack of
trust, can have a negative impact on performance (Minichilli, Corbetta,
& MacMillan, 2010).
As an example, a family member who is also a member of the top
management team (TMT) may decide that a certain long term invest-
ment is in the best interest of the organization. This business leader will
need the support of other members of the TMT in order for this in-
vestment to be successful. However, other members of the TMT may
perceive the risks associated with this investment differently or might
even perceive significant personal risks leading to the potential for
opportunism (Gomez-Mejia, Nuñez-Nickel, & Gutierrez, 2001; Wiseman
& Gomez-Mejia, 1998). As a family business, the members of the TMT
may share a history together as well as a desire for continuity into the
future. In addition, they may even share desires to preserve socio-
emotional wealth including reputation; however, none of these ex-
periences or desires are able to mitigate all of the potential risks to the
individuals. Trust then plays a pivotal role in allowing team members to
support the strategy in spite of individual risks and with fewer con-
tractual or other more formal controls (Carson et al., 2006; Schoorman
et al., 2007). Trust among the TMT allows individual team members to
put themselves at risk in relation to the chosen strategy based on their
expectations that team members have their best interests at heart.
It is clear from the above discussion that the family business context
with its reduced labor pool, focus on non-economic forms of wealth and
lack of external controls creates a situation where the role of and im-
portance of trust is of paramount importance. Trust allows leaders in
family businesses to operate effectively in the face of these risks
(Eddleston, Chrisman, Steier, & Chua, 2010; Mayer et al., 1995), re-
ducing the costs for monitoring and reducing the likelihood of incurring
additional residual losses that may result from this risks in the absence
of monitoring or control. Trust then reduces agency costs and allows
members of the top management team to apply more of their focus on
the needs of the organization rather than agency related risk mitigation
(Davis, Schoorman, Mayer, & Hwee Hoon, 2000). As a result, family
businesses that are able to build trust within the TMT should benefit
from more effective teamwork, focus, development and execution of
strategies, commitment and overall function as top managers as well as
reduced monitoring and other agency costs all of which will support
positive performance outcomes. Following on this discussion we argue
that trust in the top management team by individual team members will
be positively related to firm level performance in family businesses.
Hypothesis 1. Trust of the top management team will be positively and
significantly related to firm level performance.
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2.4. The role of commitment
While we have argued that trust within the family business context
should be related to family business performance, this effect is not
necessarily direct. Therefore, we need to examine more closely the
mechanism by which reducing agency risks leads to performance.
Researchers have argued that the effect of trust on performance takes
place through individual behaviors, specifically individual risk taking
(Colquitt, Scott, & LePine, 2007). As trust among top management team
members in family businesses increases, individual team members
should be more willing make themselves vulnerable in relation to the
organization (Mayer & Gavin, 2005; Mayer & Schoorman, 1992). Trust
allows individual team members to support the strategic direction of
the organization in spite of the inherent risks posed by uncertainties
such as those caused by self-control issues, a reduced labor pool or a
lack of market based controls (Gomez-Mejia et al., 2001; Schulze et al.,
2001; Schulze et al., 2003; Wang & Wu, 2012).
One attitude that represents risk taking on the part of TMT members
and is of particular importance to family businesses is commitment
(Sharma & Irving, 2005; Zahra, Hayton, Neubaum, Dibrell, & Craig,
2008). Commitment is a binding force experienced as a psychological
state or mind-set and can lead to behaviors that are beneficial to the
organization (Meyer & Herscovitch, 2001). Commitment represents a
risk on the part of TMT members because individual team members
allow themselves to become emotionally attached to the organization in
spite of uncertainties regarding the personal benefits of such an at-
tachment. Researchers have shown that trust in the members of the
team or team leaders results in higher levels of commitment to the
organization and its goals (Wang & Wu, 2012). Of particular interest to
this study is affective commitment (Mayer & Schoorman, 1992). Af-
fective commitment is defined as identification and alignment with the
beliefs and values that the business represents and an emotional at-
tachment to the organization (Allen & John, 1990; Mayer & Schoorman,
1992).
The importance of affective commitment in family businesses lies in
its connection with the concept of socioemotional wealth and other
risks associated with the family business context. Affective commitment
implies an emotional attachment to and acceptance of norms or values
held by the organization. As socioemotional wealth is also based on
affective, values driven outcomes such as need for belonging, control,
status etc. (Gómez-Mejía et al., 2007), this kind of commitment on the
part of top management team members can represent an acceptance of
the importance of maintaining socioemotional wealth. In addition,
because families play such a significant role in family business decision
making, family values and ideals are often integrated into the overall
business values (Sharma & Manikutty, 2005). Affective commitment
can represent an acceptance of and support for these family driven
values (Zahra et al., 2008). A willingness to commit affectively to the
organization also represents an acceptance of the resulting vulnerability
given that the goals of the organization likely do not align perfectly
with the goals of the individual (Schulze et al., 2000; Wang & Wu,
2012). Given these individual risks associated with commitment to the
family business, trust should support affective commitment on the part
of TMT members. This occurs as trust within the TMT allows members
to commit to the organization in spite of inherent risks and un-
certainties.
Following on the above discussion, affective commitment to the
organization represents a willingness on the part of TMT members to
accept the norms and values espoused by the organization. We argue
that in the case of family businesses, this commitment also represents a
willingness to accept and be governed by the relationship based gov-
ernance structures upon which the control in the family business con-
text can be based. So, while it leads to higher levels of personal risk for
the TMT members, it reduces the agency risk by increasing the like-
lihood that the TMT will behave in a manner consistent with the desires
of the owners. This includes risks associated with labor market
42
Journal of Business Research 84 (2018) 34–45
inefficiencies, self-control issues with a focus on socioemotional wealth
preservation and a lack of external controls that are associated with this
relationally based governance. Affective commitment has been shown
to lead to increased cooperation and consensus in decision making as
well as reduced conflict and lower transaction costs among other po-
sitive outcomes (Davis et al., 2000; Sundaramurthy, 2008). Trust fa-
cilitates these outcomes by allowing individuals to commit to the or-
ganization and engage in positive behaviors in spite of uncertainties
(Wang & Wu, 2012).
Given the vulnerability and uncertainty surrounding a willingness
on the part of top management team members to affectively accept
norms and values of the organization including a focus on socio-
emotional wealth, we argue that the effect of trust on performance in
family businesses will take place through affective commitment. As
trust in the top management team by individual team members in-
creases within family businesses, affective commitment to the organi-
zation is facilitated. Because trust allows individuals to be vulnerable
(Schoorman et al., 2007), trust will allow top management team
members to accept norms and values of the organization through af-
fective commitment even if those norms and values represent risk or
uncertainty such as a focus on socioemotional wealth or the chance for
opportunistic behavior (Berrone et al., 2010; Gomez-Mejia et al., 2010).
Trust and the resulting commitment facilitate positive group dynamics
among the top management team, increasing consensus, and cohesion
and reducing conflict (Ensley & Pearson, 2005). This leads to more
effective decision making within the top management team resulting in
positive performance implications (Dyer, 2006; Homburg & Krohmer,
1999). Furthermore, this commitment will allow family businesses to
capitalize on the benefits of lower transaction costs and increased
flexibility associated with relational governance further enhancing
performance (Poppo et al., 2008), leading us to the following hy-
potheses.
Hypothesis 2. Trust of the top management team will be positively
related to affective commitment of TMT members to the organization.
Hypothesis 3. Affective commitment of TMT members to the
organization will mediate the relationship between trust and firm
level performance.
2.5. Context specific factors for trust in family firms
It is clear from the discussion above that trust in the family business
is important and that one positive outcome of trust in the TMT by in-
dividual team members is higher levels of commitment leading to
higher levels of performance. That being said, in order to more fully
understand this important relationship, it is also vital to understand
contextual factors in family businesses that might influence the trust to
commitment relationship. This is in keeping with calls from researchers
for a more context specific study of trust and its relationship to in-
dividual outcomes and firm performance (Schoorman et al., 2007). We
argue that two factors unique to the family business context, family
business generation and family member status, will influence the im-
pact of trust on commitment.
First, the concept of family business generation is an important issue
in family business survival and performance (Shepherd & Zacharakis,
2000). One of the main purposes of family businesses is to benefit the
family by passing ownership and control of the business on to the next
generation (Lubatkin et al., 2005; Miller et al., 2010). Indeed, the
concept of socioemotional wealth is based to a large extent on affective
benefits related to maintaining family influence over time (Gómez-
Mejía et al., 2007; Gomez-Mejia, Larraza-Kintana, & Makri, 2003). In
spite of the importance of transfer to the next generation it is estimated
that fewer than 30% of all family businesses will survive the transition
from first to second generation (Davis & Harveston, 1998; Handler,
1990; Shepherd & Zacharakis, 2000). One reason cited for this
M.R. Allen et al. Journal of Business Research 84 (2018) 34–45

43
M.R. Allen et al.
relatively low level of generational survival is the lower obligation that
next generation leaders feel toward the organization (Sharma & Irving,
2005). Given the risks associated with the transition of a family busi-
ness from generation to generation, we argue that top managers in later
generations will experience greater uncertainty regarding TMT decision
making and firm viability than those in earlier generations. Because
trust facilitates risk taking under uncertainty, the effect of trust in in-
fluencing commitment among TMT members will be even more im-
portant in later generations where uncertainty regarding survival is
potentially greater.
Hypothesis 4a. Family business generation will moderate the
relationship between trust and top management team member
affective commitment such that the effect of trust will be greater in
later generations.
Second, the family member status of the top management team
member will also impact the relationship between trust and commit-
ment. Though family businesses are owned by and often managed by
family members, not all top managers are members of the controlling
family (Gómez-Mejía et al., 2007; Schulze et al., 2001). This creates a
unique dichotomy in that some of the team members have direct ties to
ownership through family connections while others do not (Birley,
2002; Hoy & Verser, 1994). Similarly, because family firms often seek
to pass leadership and control on to the next generation, family-mem-
bers have a much higher likelihood of continuing to advance through
the organization leadership and participating in the ownership of the
organization in the future (Schulze et al., 2001). This situation has
important implications for trust and the effect of trust on commitment.
As outsiders in the family relationship, non-family leaders likely have
greater concerns about opportunistic behavior on the part other mem-
bers of the TMT. Non-family members are also less likely to benefit from
decisions related to the preservation of socioemotional wealth (Morris,
Allen, Kuratko, & Brannon, 2010). Similarly, without the protective
cushion of family member status, non-family top managers likely per-
ceive greater risk related to their commitment to the family business
(Gomez-Mejia et al., 2003). As a result of these increased risks, the
importance of trust in the top management team and in turn the effect
of this trust on commitment will be greater for top managers who are
not family members.
Hypothesis 4b. Top manager family member status (family member vs.
non-family member) will moderate the relationship between trust and
affective commitment such that the effect of trust will be greater for
non-family members.
3. Methodology
3.1. Sample
Because we wanted to focus specifically on trust in the family
business context, we contacted firms associated with a family business
program at a large US university. Affiliation with the family business
program was based on employment in a family business and partici-
pants further self-identified their family business employment status
through completion of the survey which specifically called for em-
ployment in a family business as part of the participation criteria. A link
to the survey was emailed to top management contacts at each of the
firms (n = 908) and a total of 159 completed surveys were returned for
a response rate of 18%. In order to separate the collection of trust and
commitment information from that of performance as well as to ac-
count for potential time lags in performance outcomes, a second survey
seeking performance information was sent to the 159 respondents ap-
proximately 1 year later. 126 responses were received from this second
survey for a response rate of 79%. Incomplete data and the dropping of
responses from those who were not members of the top management
team resulted in 112 usable responses from 112 unique family
44
Journal of Business Research 84 (2018) 34–45
businesses representing an overall response rate of 12%, which is
consistent with response rates of similar surveys targeting executives in
private firms (Bartholomew & Smith, 2006) including executives in
family businesses (Cruz et al., 2010). In order to test for potential re-
sponse bias between time 1 respondents, time 2 respondents and non-
respondents, groups were compared based on industry, number of
employees and generation of their employer organizations. No differ-
ences between groups was found (p < 0.05), therefore we concluded
that response bias was not a major problem in our study.
Top managers responding to the survey worked for organizations
representing 3 broad industry segments: 58% in services, 25% in
manufacturing, and 17% in wholesale/retail. Nearly half (43%) of the
businesses had > 50 employees. More than half (57%) worked for fa-
mily businesses currently operated by the first generation. Respondents
were all members of the top management team with 50% acting as CEO
and the remainder as non-CEO members of the top management team.
Average ownership percentage of the controlling family for the busi-
nesses represented was 92%. All participating family businesses are
privately held.
3.2. Measures
3.2.1. Trust
Trust in top management team was measured using a four-item
scale developed by Davis et al. (2000). The four items assessed top
management team member trust for the firm leadership using items
assessed on a scale from 1, “strongly disagree” to 5, “strongly agree”.
Reliability for this measure as indicated by its Chronbach alpha was
0.81.
3.2.2. Affective commitment
We measured affective commitment using a 9 - item measure de-
veloped by Schechter (1985) and subsequently used by others as a valid
and reliable measure for their research (Mayer & Schoorman, 1992).
Respondents indicated the degree to which they were committed to the
business using a scale ranging from 1, “strongly disagree” to 5,
“strongly agree”. Items assessed the degree to which employees were
committed to organizational values and identified with the organiza-
tion. Reliability was acceptable with a Chronbach alpha of 0.89.
3.2.3. Family member status
Family member status was a dichotomous variable with one re-
presenting that the respondent was a member of the controlling family.
3.2.4. Generation
Generation was measured as the generation which was currently
managing the organization.
3.2.5. Organization performance
Organizational performance was measured using a perceptual per-
formance measure based on a measure developed by Delaney and
Huselid (1996) and adapted for the purpose of this study. The measure
asked respondents to assess the performance of their organization
compared to that of their competitors on “return on equity”, “return on
total assets”, “profit margins on sales”, and “ability to fund growth from
profits” (Delaney & Huselid, 1996). Conversations with family business
owners indicated that these items represented important performance
criteria. Respondents indicated their perceptions using a scale ranging
from 1 = “much worse” to 5 = “much better”. Given the
responsibility level of the respondents as members of the top
management team (50% were acting as CEO) it was expected that the
respondents had sufficient knowledge of their organization's
performance to effectively respond. Reliability for this measure as
indicated by its Chronbach alpha was
0.92. Prior research has confirmed that the use of subjective measures
of performance is appropriate and highly correlated with more objec-
tive measures of performance when those objective measures are not
M.R. Allen et al. Journal of Business Research 84 (2018) 34–45

45
M.R. Allen et al.
available as is often the case with family businesses who tightly control
access to firm performance data (Dess & Robinson, 1984; Wilk &
Sackett, 1996).
Because the independent, intervening and dependent variables were
collected from the same respondent, concerns for common method
variance exist. In order to greatly reduce concerns regarding common
method variance, the dependent performance variable was collected
1 year after the collection of independent and intervening variables.
Allowing for a temporal separation between collection of the in-
dependent and dependent variables allows time for the previously re-
called information to leave short-term memory (Podsakoff, MacKenzie,
Jeong-Yeon, & Podsakoff, 2003), reducing the likelihood of common
method bias. In fact, Johnson, Rosen, and Djurdjevic (2011) found a
43% reduction in the correlation between dependent and independent
variables after only a three-week delay versus both measured at the
same time.
3.3. Control variables
Additional variables are included in the analysis to control for
possible alternative explanations for the hypothesized relationships.
3.3.1. Firm size
Firm size could potentially affect the performance of the firm as well
as the level of commitment. Larger firms have access to more resources,
which may give them the opportunity to act more quickly on oppor-
tunities or to more aggressively pursue new markets. Firm size might
also affect the commitment of the top management team. In a smaller
organization the team may feel a stronger connection to the organiza-
tion and have more commitment to the organization regardless of the
level of trust. Therefore, we controlled for firm size based on the
number of employees using the following groupings: 1 = 0–5,
2 = 6–10, 3 = 11–26, 4 = 26–50 and 5 = 50
+.
3.3.2. Industry
Firm performance could also be influenced by the industry in which
the firm operates. As mentioned previously, each respondent was coded
into one of 3 industry categories based on responses as well as input
from the university regarding participating organizations. We con-
trolled for these by creating dummy variables corresponding to these
industries.
3.3.3. Ownership percentage
The extent to which the family has controlling interest could po-
tentially affect the level of commitment to the organization as well as
the firm's performance. It is possible that families with a large amount
of equity in the business might divert company resources to activities
that benefit the family's interest as opposed to the near term business
performance. Therefore, we used the ownership percentage of the
controlling family as a control variable.
3.4. Data analyses
We tested our hypotheses in two related steps. Hypotheses 1–3
suggest a simple mediation model. Hypotheses 4a–4b propose a mod-
erating effect on one of the mediation paths. While our hypotheses are
related to the moderation of the direct effect of Trust on Commitment,
we used a moderated mediation model to examine both our hypotheses
as well as to examine whether the Family Member Status and Genera-
tion moderate the indirect effect of Trust on Performance as well.
Hypotheses 1, 2 and 3 suggest an indirect effects model where the
relationship between trust and performance is transmitted through
commitment. In the past, many researchers have used the multistep
approach proposed by Baron and Kenny (1986). However, methodol-
ogists have identified several shortcomings with this method
(MacKinnon, Lockwood, Hoffman, West, & Sheets, 2002; Preacher and
46
Journal of Business Research 84 (2018) 34–45
Hayes, 2004). For example, the first step in the Baron and Kenny ap-
proach suggests that it is necessary to show a significant direct effect of
the independent variable (in this case, trust) on the dependent variable
(performance) in order to support mediation. However, as mediation
processes become more complex, and distal (as in the case in the cur-
rent study), it has been noted that there is increasing likelihood that the
effect gets smaller as “it is (a) transmitted through additional links in a
causal chain, (b) affected by competing causes, and (c) affected by
random factors” (Shrout and Bolger, 2002, p. 429).
Therefore, rather than using the multistep approach outlined by
Baron and Kenny (1986), researchers have suggested that tests of
mediation be based on formal significance tests of the indirect effect ab
(Preacher and Hayes, 2004), where a represents the path between the
independent variable (Trust) and the mediator (Commitment) and b
represents the path between the mediator and the dependent variable
(Performance). The most well-known test of this effect is the Sobel
(1982) test. However, the Sobel test is based on the assumption that the
indirect effect is normally distributed and it is known that the dis-
tribution of ab is nonnormal even when the variables constituting the
product are normally distributed (Edwards & Lambert, 2007). In light of
this, the use of bootstrapped confidence intervals (CIs) has been pro-
posed in order to avoid power problems due to nonnormal distributions
of the indirect effect ab (MacKinnon, Lockwood, & Williams, 2004). In
order to accomplish this we used an SPSS macro developed by Preacher
and Hayes (2004) in order to test Hypotheses 1–3. This macro examines
the indirect effect ab using bootstrapping to obtain CIs for the indirect
effect.2
Hypotheses 4a and 4b regarding the effect of family generation and
family member status propose that these moderate the relationship
between trust and commitment. Given that we are also proposing that
commitment mediates the relationship between trust and performance
we have chosen to treat this as a moderated mediation model. If the
mediation model suggested by Hypotheses 1–3 receives support, then
using a moderated mediation model will allow us to not only examine
the moderation effect on path b (between trust and commitment) as
hypothesized, but it will also inform us as to whether or not these
variables moderate the overall indirect effect of trust on performance
that is mediated by commitment, known also as conditional indirect
effects (Preacher, Rucker, & Hayes, 2007). To test these hypotheses we
used a second SPSS macro developed by Preacher et al. (2007) which
again uses bootstrapping methods for examining the significance of
conditional indirect effects at different levels of the two moderator
variables.
3.5. Results
In Table 1, we present the means, standard deviations, and corre-
lations for the variables in our study. As indicated in the table, we found
significant correlations among our focal variables of interest. Table 2
shows the results for Hypotheses 1–3. We found a positive and sig-
nificant relationship between trust and performance (B = 0.4097,
p < 0.01), indicating that increasing levels of trust are associated with
increasing firm performance, providing support for Hypothesis 1. We
also found a positive and significant relationship between trust and
commitment (B = 0.4568, p < 0.01) indicating that increasing levels
of trust are associated with increasing levels of commitment providing
support for Hypothesis 2. In addition to the relationship between trust
and commitment, we also found that commitment was positively re-
lated to performance, controlling for trust (B = 0.5616, p < 0.01).
Furthermore, once the effects of commitment on performance are
2
We recognize that this direct effect is one of our hypotheses that we will test and we
believe it will be significant, the Baron and Kenny approach requires this to be significant
in order to test for a mediation effect. The Preacher and Hayes method allows for testing
of the indirect effects even if the direct effect is not significant.
M.R. Allen et al. Journal of Business Research 84 (2018) 34–45

Table 1
Descriptive statistics.

Variable Mean S.D. 1 2 3 4 5 6

Service 0.58
Retail/wholesale 0.17
Manufacturing 0.25
CEO 0.50
Family member 0.78
1 Size 3.17 1.63 1.00
2 Ownership percent 92.17 16.32 − 0.16 1.00
⁎⁎
3 Generation managing 1.71 0.86 0.46 0.11 1.00
4 Trust 3.95 0.86 − 0.15 0.06 − 0.02 1.00
⁎⁎
5 Commitment 4.41 0.61 − 0.11 0.05 0.01 0.66 1.00
⁎⁎ ⁎⁎
6 Performance 3.66 0.88 − 0.14 0.13 0.00 0.42 0.49 1.00

⁎⁎
p < 0.01 (two-tailed).

Table 2
Regression results for simple mediation.

Variable B SE t P

Control variables
Retail/wholesale − 0.17 0.24 − 0.72 0.47
Services − 0.20 0.20 − 1.00 0.32
Size − 0.05 0.05 − 1.04 0.30
Ownership percentage 0.01 0.01 1.06 0.30

Direct and total effects

⁎⁎
Firm performance regressed on t rust 0.41 0.09 4.52 0.00
⁎⁎
Commitment regressed on trust 0.46 0.05 8.92 0.00
⁎⁎
Firm performance regressed on commitment, controlling for trust 0.56 0.16 3.43 0.00
Firm performance regressed on trust, controlling for commitment 0.17 0.11 1.53 0.13

2 2
R Adj R F p

⁎⁎
0.27 0.23 6.58 0.00

Bootstrap results for indirect effect

M SE LL 95% CI UL 95% CI LL 99% CI UL 99% CI

Effect 0.25 0.09 0.10 0.47 0.03 0.51

Note: n = 112 firms. Unstandardized regression coefficients are reported. Bootstrap sample size =
5000. LL = lower limit; CI = confidence interval; UL = upper limit.
⁎⁎
p < 0.01.

47
M.R. Allen et al.
controlled for, the relationship between trust and performance is no
longer significant, suggesting that commitment fully mediates the re-
lationship between trust and performance (Hypothesis 3). Interestingly,
none of the control variables were significant. The overall model was
significant (F = 6.583, p < 0.01) and explained approximately 23% of
the variance in firm performance. The bootstrap results confirmed that
the indirect effect was significant, as indicated by the fact that the 99%
CI that did not include zero (0.0873, 0.4847), providing further support
for Hypothesis 3.
Tables 3 and 4 present the results for Hypotheses 4a and 4b. As can
be seen in Table 3, neither the generation nor the interaction term for
generation and trust when commitment is regressed on trust is sig-
nificant, so Hypothesis 4a is not supported. Additionally, though not
hypothesized, we examined whether or not generation moderates the
overall indirect effect of trust on performance through commitment. It
can be seen that the interaction effect is not significant and that there is
little change in the indirect effect based on the generation of the family
currently running the business.
Table 4 shows the results for the moderated mediation with family
member status as the moderator. Here we can see that both family
member status and the interaction term in the first model with com-
mitment as the dependent variable are significant. Family member
48
Journal of Business Research 84 (2018) 34–45
status is positively related to commitment (B = 1.3506, p < 0.01) and
it negatively moderates the relationship between trust and commitment
(B = − 0.2975, p < 0.01), providing support for Hypothesis 4b.
However, we can see in the lower part of the table that this effect is
limited to the relationship between trust and commitment and family
member status does not appear to moderate the indirect effect of trust
on performance through commitment. This is illustrated by the fact that
the interaction term is not significant with performance as the depen-
dent variable. Furthermore, since this is a dichotomous variable, the
macro provides estimates of the indirect effect at each level of the
variable. We can see that while the indirect effect is significant for each
value, there is overlap between the 95% CI estimates of the indirect
effect size is essentially the same, so we cannot conclude that family
member status moderates the overall indirect effect of trust on perfor-
mance.
4. Discussion
This context specific study of trust in family businesses is in line
with calls for understanding trust and the role of trust in influencing
performance in specific contexts (Schoorman et al., 2007). Family
businesses represent an interesting context in which to study trust and
M.R. Allen et al. Journal of Business Research 84 (2018) 34–45

Table 3
Regression results for conditional indirect effect of generation.

Predictor B SE t p

Commitment
⁎⁎
Constant 2.10 0.51 4.11 0.00
Retail/wholesale − 0.03 0.14 − 0.23 0.82
⁎
Services 0.24 0.12 2.04 0.04
Ownership percentage 0.00 0.00 0.04 0.97
Size 0.00 0.03 0.11 0.91
⁎⁎
Trust 0.51 0.11 4.66 0.00
Generation 0.22 0.24 0.91 0.37
Generation × trust − 0.04 0.06 − 0.60 0.55

Performance
Constant 1.23 0.93 1.32 0.19
Retail/wholesale − 0.23 0.24 − 0.94 0.35
Services − 0.22 0.20 − 1.06 0.29
Ownership percentage 0.01 0.01 1.19 0.37
Size − 0.05 0.06 − 0.91 0.24
⁎⁎
Commitment 0.56 0.16 3.47 0.00
Trust − 0.02 0.20 − 0.10 0.92
Generation − 0.44 0.39 − 1.14 0.26
Generation × trust 0.11 0.10 1.17 0.25

Generation Indirect effect SE z p LL 95% CI UL 95% CI

Conditional indirect effect at various levels of generation

1.0 0.27 0.09 3.12 0.00 0.11 0.47

2.0 0.25 0.08 3.16 0.00 0.10 0.49
3.0 0.23 0.09 2.67 0.01 0.07 0.54
4.0 0.21 0.11 2.00 0.05 0.03 0.67

Note: n = 112 firms. Unstandardized regression coefficients are reported.

⁎
p < 0.05.
⁎⁎
p < 0.01.

Table 4
Regression results for conditional indirect effect of family member status.

Predictor B SE t p

Commitment
Constant 1.49 0.45 3.27 0.00
Retail/wholesale − 0.06 0.13 − 0.47 0.64
⁎
Services 0.28 0.11 2.52 0.01
Ownership percentage 0.00 0.00 0.054 0.96
Size 0.044 0.03 1.48 0.14
⁎⁎
Trust 0.63 0.09 7.41 0.00
⁎⁎
Family member 1.35 0.43 3.17 0.00
⁎⁎
Family member × trust − 0.30 0.11 − 2.77 0.01

Performance
Constant 0.04 0.82 0.05 0.97
Retail/wholesale − 0.13 0.23 − 0.55 0.59
Services − 0.20 0.20 − 1.02 0.31
Ownership percentage 0.01 0.01 1.46 0.15
Size − 0.06 0.05 − 1.14 0.26
⁎⁎
Commitment 0.61 0.17 3.63 0.00
Trust 0.27 0.18 1.47 0.15
Family member 0.09 0.76 0.11 0.91
Family member × trust − 0.15 0.19 − 0.78 0.44

Family member Indirect effect SE z p LL 95% CI UL 95% CI

Conditional indirect effect at various levels of family member status

0 0.39 0.12 3.23 0.00 0.14 0.70

1.0 0.21 0.07 2.97 0.00 0.10 0.36

Note: n = 112 firms. Unstandardized regression coefficients are reported.

⁎
p < 0.05.
⁎⁎
p < 0.01.

49
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50
M.R. Allen et al. Journal of Business Research 84 (2018) 34–45

the role of trust in influencing performance because of the unique beneficial to the family business in spite of inherent risks.
governance structure resulting from the owner-managed leadership
model and a reliance on relational governance. While owner-manage- 4.1. Practical implications
ment eliminates some opportunistic behavior due to owner-manager
alignment, an increased focus on socioemotional wealth and self-con- Prior research on trust indicates that trust does indeed have im-
trol issues generate significant uncertainties for top managers creating portant performance implications at the organizational level (Davis
an interesting environment within which to study the effects of trust on et al., 2000). Given the role of family businesses in the economy, it is
performance. important for family business owners and top managers to understand
In this study we describe why trust matters for performance within the role that trust might play in influencing the performance of family
the family business context. We accomplished this by theoretically businesses. Our findings indicate that trust within family firm leader-
developing and testing a model describing the underlying process ship is positively associated with organization level performance. Fa-
through which trust influences attitudes of top management team mily business leadership should focus on developing trust among
members which in turn influence performance. We argued that trust members of the TMT in order to increase commitment and in turn
facilitates the ability of top management team members to fully commit improve group dynamics and performance (Davis, Allen, & Hayes,
to the organization resulting in positive performance outcomes. 2010). Our findings also have implications for governance structures
Specifically, trust works by allowing team members to put themselves within family businesses. As family businesses seek to benefit from
at risk in becoming affectively committed to the organization in spite of implementing relational governance structures, interteam trust and
the risks and uncertainties posed by a focus on socioemotional wealth processes for enhancing that trust in order to strengthen relationships
and other family business specific issues (Cruz et al., 2010; Schulze should be considered. Perhaps even more important, it appears that
et al., 2001). Commitment represents an outcome that is of particular efforts to enhance trust among non-family members of the top man-
importance to family businesses because it implies an acceptance of and agement team will have an even greater impact.
support for beliefs and values such as the pursuit of socioemotional
wealth (Mayer & Schoorman, 1992) or more importantly in this case 4.2. Limitations and future research
relational governance structures. When family business leaders trust
other top management team members in their organizations, they are
While we are pleased with the findings of this study and feel that
more willing to be committed in spite of uncertainties (Schoorman
significant contributions to the literature have been made, potential
et al., 2007). Indeed, the family business context likely exacerbates the
limitations of this study should be taken into account when evaluating
risks associated commitment on the part top managers (Gomez-Mejia
the impact of these findings. First, we were not able to prove causality.
et al., 2010; Schulze et al., 2003). Trust leads to commitment among the
While the measurement of the performance variable at a time 1 year
TMT which supports relational governance structures and leads to su-
after the measurement of trust and commitment represents a significant
perior group dynamics as well as reduced governance costs and in-
strength in the design, we are not able to demonstrate causality, espe-
creased flexibility which in turn positively impacts performance (Ensley
cially between trust and commitment. While theory would support the
& Pearson, 2005).
temporal precedence of trust (Schoorman et al., 2007), future research
In order to further understand trust in the family business context,
should employ a longitudinal design between trust and intervening
we tested the role of both generation and family member status and
variables and utilize additional control variables in order to more fully
their impact on the relationship between trust and commitment. Both
establish the causal relationship between trust, intermediate variables
generation and family member status represent important variables that
and firm level performance (Cook & Campbell, 1979).
are unique to operating in a family business context. Specifically we
Second, there are multiple attitudinal and behavioral aspects that
found that family member status did moderate the relationship between
might represent an acceptance of risk or uncertainty on the part of
trust and commitment. It appears that because of the increased risk
leaders. While the use of affective commitment is supported by family
faced by non-family leaders when working in a family business, the
business, trust and relational governance theories, it is likely that other
impact of trust is greater for this particular group. It is interesting to
aspects such as attachment, organization citizenship behaviors or even
note that though the effect is greater for non-family members, the effect
other types of commitment could explain some portion of the re-
is positive for both family and non-family top management team
lationship between trust and performance at the organizational level.
members alike. Thus it seems that trust is important for both family and
Future research should focus on testing additional intervening variables
non-family, but the impact of trust on commitment is greater for non-
in the trust to performance relationship in order to more fully under-
family members. The hypothesis that the generation of the family
stand the process through which trust influences performance.
business would also moderate the relationship between trust and
Third, the process between trust and firm level performance is very
commitment was not supported. Upon further reflection, it is possible
complex. While we attempted to test and measure the significant the-
that the increased risk associated with second or later generations of
oretical steps in that process, our study was not able to capture the
family businesses is more prevalent during transition times. Though the
entire process. Specifically, trust is argued to compensate for risk in
number of family businesses that are able to survive the transition from
relationships (Mayer et al., 1995). While we can theoretically argue
first to second generation is low, once that transition has taken place
that commitment represents an acceptance of inherent risks, we did not
successfully, it is possible that stability is returned to the business and
measure risk directly which is a weakness in our empirical model. Si-
risk associated with failure or opportunistic behavior on the part of the
milarly, theory would argue that commitment among top management
leadership is similar to that of a first generation family business.
team members will support positive group dynamics, however, group
Our findings have implications for understanding trust and perfor-
dynamics were not directly measured either. Future research should
mance in family businesses. Family firms represent a significant portion
look to further empirical testing of the trust to performance process by
of the economy and it is important for both researchers and practi-
including additional intervening portions of the model or focusing on
tioners to understand how these firms might be able to increase per-
specific components of the model in order to increase our under-
formance and in turn competitiveness. Our findings indicate that trust is
standing.
one driver of performance in this important context. Given the unique
Finally, our research was conducted using a group of privately held
leadership and governance issues in family businesses, trust is im-
family businesses. While this represents the majority of family busi-
portant in supporting relational governance structures through en-
nesses, many family businesses are publicly traded. Future researchers
couraging commitment. It appears that trust within family firm lea-
should look to confirm these findings using other subsets of family
dership allows top managers to feel and behave in ways that are
businesses including publicly traded family businesses.

51
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52
M.R. Allen et al.
4.3. Conclusion
There is growing interest in understanding how trust influences
performance and more specifically how trust might influence perfor-
mance in the important context of family businesses. In our study we
identified a set of intervening variables including commitment as a
mediator as well as context specific moderators that help explain the
process through which trust influences performance in family busi-
nesses. Specifically, we demonstrated that the impact of trust on the
performance of family businesses takes place through commitment.
Further we found that family member status is an important component
of this relationship with family member status moderating the re-
lationship between trust and commitment.
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