The Role of Knowledge and Trust in SMEs

Abstract

This paper aims to explore the role of interpersonal trust and knowledge in the number of Small and Medium Enterprises (SMEs), both conceptually and empirically. The number of SMEs in an economy seems largely to depend on level of knowledge of employees and educational level of leading entrepreneurs. Furthermore, existence of trust in transactions lowers cost of such transactions, as it allows financial agreements to be less dependent on formal regulations and facilitates investment and innovations. This study uses a series of variables to express these structural relationships, which are analysed using a principal component analysis (PCA), a regression analysis and a two-stage least squares (2SLS) analysis. Through our empirical work, we conclude that there is an endogeneity problem between interpersonal trust and the number of SMEs. By solving the endogenous problems, the conclusions confirm two strongly positive effects; knowledge positively affects the number of SMEs, which in turn, positively affects interpersonal trust. Note that the empirical results indicate that interpersonal trust does not affect the number of SMEs. Therefore, although knowledge development can reinforce SMEs, trust becomes widespread in a society when the number of SMEs is greater.

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Notes

  1. 1.

    Using the Davidson and MacKinnon test [24, 25], we find no endogeneity between the KNOWLEDGE and TRUST variables (exogeneity test = 0.46). The same conclusion arises from the regression of KNOWLEDGE on TRUST, as the partial F-statistic assumes the value of 3.31 (F-statistic < 10), while 8.64 % of the squared residuals can be explained by this variable, according to the partial R 2. The conclusion was confirmed by the correlation matrix, which shows a weak, non-statistically significant correlation between the two variables (Table 3). In the same way, based on the regression of TRUST NEIGHBOUR on SME, the partial F-statistic assumes the value 0.41 (F-statistic < 10), while just 1.27 % of the squared residuals can be explained by this variable, according to the partial R 2. Thus, KNOWLEDGE and TRUST NEIGHBOUR can be used as exogenous variables in the evaluation of the system using the 2SLS method.

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The authors would like to thank all the unknown referees for their most valuable comments and suggestions that greatly helped to improve the manuscript.

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Petrakis, P.E., Kostis, P.C. The Role of Knowledge and Trust in SMEs. J Knowl Econ 6, 105–124 (2015). https://doi.org/10.1007/s13132-012-0115-6

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Keywords

  • SME
  • Knowledge
  • Interpersonal trust
  • Endogeneity