Social trust and management appointment in family firms

Based on a sample of Chinese listed family firms from 2007 to 2019, this study investigates the impact of social trust on management appointments in family firms. Results show that higher regional social trust increases the likelihood of family firms appointing outsiders to key management roles. Mechanism analysis indicates that social trust mitigates concerns about moral hazards in hiring outsiders by enhancing intrinsic moral constraints and raising external reputation costs. Further research reveals that social trust and certain formal institutions (e.g., legal efficiency and financial deepening) are substitutive in shaping managerial appointment decisions in family firms. Additionally, Confucian culture and asset specificity diminish the positive effect of social trust on appointing outsiders. Meanwhile, stronger monitoring mechanisms attenuate social trust’s influence on these decisions. Finally, this study confirms that appointing outsiders enhances firm performance in regions with higher social trust. Our research demonstrates that social trust is an overlooked yet significant factor in optimizing family firm management decisions. Copyright © 2025 Elsevier B.V. All rights are reserved, including those for text and data mining, AI training, and similar technologies.