Abstract:
Scholars revealed that interpersonal trust among exchange partners mitigates
transaction costs and thereby enhances the greatest level of business performance.
However, the lack of empirical evidence specifically in the Sri Lankan context
highlights a major gap in the existing literature. In this study, 225 retail traders in
the Gampaha district of Sri Lanka are specifically investigated to examine how
interpersonal trust affects transaction costs and business success. Retail traders were
interviewed personally using a pre-tested structured questionnaire for gathering
primary data.The Partial Least Square Structural Equation Model (PLS-SEM) was
used to analyze data. The findings revealed a negative relationship between
transaction cost and interpersonal trust, while a significant positive relationship
between company performance and interpersonal trust. Additionally, the results
found that transaction costs have a negative correlation with business performance
and mediate the relationship between business performance and interpersonal trust.
Thus, this study provides insight on how interpersonal trust enhances business
performance and minimizes transaction costs.By quantitatively evaluating this
interdisciplinary framework, it blends sociological concept of inter-personal trust
with economics and marketing management, making a significant contribution to the
theoretical and empirical literature. The study emphasizes how crucial it is for retail
traders to build trusting relationships with exchange partners because doing so
would effectively reduce transaction costs and improve business performance.
