Effects of Previous Control System Strength on Subsequent Trust

Abstract

Successful cooperation is crucial to the success of inter-organizational relationships. However, facilitating cooperation in any collaborative endeavor is challenging. Prior literature has explored the possibility of management control systems including financial incentives for cooperative behavior to facilitate trust and cooperation. Using a laboratory experiment we examine perceptions of trust resulting from variation in the strength of the financial incentives used in the management control system of partnering organizations. Our results suggest that variation in control system strength complicates cooperative environments by biasing trust levels of potential partners. Given the diversity of management control systems utilized by organizations, our results extend the current management accounting literature with regards to cooperation and trust in inter-organizational relationships.