THE IMPACT OF INTERPERSONAL TRUST ON TRANSACTION COSTS AND BUSINESS PERFORMANCE AMONG RETAIL TRADERS IN GAMPAHA DISTRICT OF SRI LANKA

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.