Vojislav Babic, Ekonomski fakultet, Univerzitet u Beogradu, Management and Trust During the GEC: The Case of Serbia

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MANAGEMENT AND TRUST DURING THE GLOBAL ECONOMIC CRISIS:

THE CASE OF SERBIA

Professor Sinisa ZARIC, PhDUniversity of Belgrade, Faculty of Economics

Kamenicka 6, 11000 Belgrade

Professor Vojislav BABIC, PhDUniversity of Belgrade, Faculty of Economics

Kamenicka 6, 11000 Belgrade

ISR Belgrade

Abstract:

The paper analyzes the trust influence on management and business indicators of

Belgrade entrepreneurs during the global economic crisis. The first chapter points out that

entrepreneurs are exposed to significant non-market risks in countries with underdeveloped

institutional infrastructure. Due to that fact, creation of business strategies is more difficult.Under the conditions of economic crisis, large number of decisions are made by the

institutions that influence on the behavior of entrepreneurs, in order to seek answers for the

crisis disturbances. In such conditions, solid stocks of social capital are of great importance

for the stability of the economy and individual agents.In chapter 2 it was defined the term,

structure and functions of social capital. Besides, it was considered the influence of social

capital on the micro-economic sector. In chapter 3, it was measured institutional, financial

and stakeholders’ trust of entrepreneurs and its impact on the investment trend, the volume

of business and real salaries of micro and small enterprises. Based on empirical data, it was

shown that low trust stocks have the negative influence on business indicators and

development of firms.

Keywords: Economic crisis, Serbian entrepreneurs, social capital, trust, business

parameters;

JEL Classification: G01, O43, L26, D22, A13

Economic agents are performing within the business environment. David Baron

(Baron, 2010) makes a distinction between the market and the non-market environment.

Operating within the non-market environment, the entrepreneurs are facing the problem of

formulating so-called non-market strategies. It is of significant interest to get knowing how

favorable the non-market environment is for business. In the same time, having in mind the

character and the structure of the non-market environment, the economic agents have to be

prepared for answering to the impulses coming from the government non-market

environment. Many of the elements of the non-market environment (the network of

institutions) are, in the same time, the factors of creating social capital. The social capital,definitely recognized as one of the kinds of capital - besides physical and the human one is

not only having a positive impact on entrepreneurial activities, but is a capital in which one



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could invest. The role of entrepreneurship in creating inclusive forms of social capital ,

considering it as a production factor (Svensend, G.L.H. and Svensend, G.T., 2005).

An entrepreneur is in a situation in which the stocks of social character and the

character of relations within this specific “glue” of society (The World Bank 1998)

influence his/her economic behaviour. An entrepreneur can participate in the government

arena by building coalitions, lobbying and trying to limit the dangers that come from those

institutions which significantly influence his/her non-market behaviour. In the time of

global economic crisis, an entrepreneur faces dramatic or less dramatic changes in the fieldof market environment. Experiences of countries such as the peripheral European countries

(Serbia), demonstrates that entrepreneurs have difficulties in anticipating the changes

coming from the range of non-market environment. Generally speaking, in countries with

insufficiently developed institutional infrastructure entrepreneurs are exposed to great non-

market risks, in other words, they have difficulties in successfully creating their non-market

strategies. Good networking (Kim,P., and Aldrich,H., 2005), solid stocks of social capital,

as well as trust in other agents and institutions, will prove to be the factors of highest

significance for the stability of economy and individual agents. The crisis incites making a

greater number of decisions by institutions which influence on the entrepreneurs’

behaviour, with the objective to seek answers to crisis disturbances. In a situation with low

trust in this segment of non-market environment actors, the low level of social capital

disables adequate adjustment of actions in the entrepreneurial structure to the newly

developed circumstances.

2. Social Capital Theory Approach

A starting framework of this study relies on a social capital theory. The social

capital represents an investment into social relations with an expected refund on a market.

Wealthy social environment, which allows frequent acquaintances and business contracts,

presents a suitable ground for exchange of social norms, trust and reciprocity. The social

capital includes information which are available to alters (members of entrepreneur

networks), ideas, instructions, business possibilities, easier approach to financial capital,

emotional and moral support, trust, cooperation, power and influence (Zaric and Babic

2010). The information collected through entrepreneurs networks, are more qualitative

because they are: 1. cheaper, 2. more detailed and accurate, 3. the alters, with which they

keep up constant contacts, have economic motivation to be reliable and 4. permanent

economic relations become coated by social content added to trust expectation andopportunism absence. Increasing the number of business contacts based on trust, it makes

an influence on decreasing transactional costs as well as the increase of physical capital

decreases production costs. The way human, physical and financial capital are productive,

the same goes for the social capital, too. Therefore, the social capital can be considered as

the input in a production process. By its use, business can be done, profit can be realized on

market, and new values can be created. Also, mission can be fulfilled, goals achieved and

the contribution can be given to the world. According to The World Bank ”The social

capital of a society includes the institutions, the relationships, the attitudes and values that

govern interactions among people and contribute to economic and social development.

Social capital, however, is not simply the sum of the institutions which underpin society, it

is also the glue that holds them together” (The World Bank 1998:1). After The World

Bank initiative an upswing of quotations was registered in economic literature, including

terms social capital and social network (Isham et al. 2002). According to Putnam, the socialcapital refers to relations among an individual, a social network, reciprocity norms and trust

resulted from them (Putnam 2000). Under the term of social capital, Schiff implicates a



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sum of social structural elements which affect interhuman relationships and represent an

input for production or functional utility (Schiff 2002). Portes sees the social capital as the

actors` ability to insure benefits through members in social networks (Portes 1998). To

Pennar’s definition, the social capital consists of networks of social relationships that

influence individual behavior and thus cause economic growth (Pennar 1998). The name

”social” in the term social capital, points to the fact that resources are neither personal

property nor they are possessed by any single person. They can be only used within

interrelation network. Entrepreneurs’ network is a personal and business network that anentrepreneur builds in order to realize his entrepreneurial ventures. Within business

management, networks are treated as a variable of a social capital that enterprises exploit to

overcome limitations related to their size and possible institutional barriers, providing

access to other resources that can improve business (Curran et al. 1995). In addition to

business networks, trust presents a significant input variable of the social capital. Numerous

authors give it the importance of weighted variables and quite a number of them identify it

with the social capital. A trust idea refers to correct expectations about the actions of other

people that have a bearing on one’s own choice of action when that action must be chosen

before one can monitor the actions of those others (Dasqupta 1998). The trust can be also

explained as a firm belief in the reliability of an individual, company or institutions, i.e. the

reliability and the veracity of their claims and statements without being checked before.

Trust can have an effect on developing entrepreneurship course, on forming different sorts

of enterprises as well as on entrepreneurs’ behavior. In connection with it, low stocks of trust increase transactional costs, limit market entry as well as firm growth and

competition.

It is possible to speak about the positive impact of social capital at the micro-

economic, macro-economic and financial sector. Due to the nature of work, the emphasis

will be on analyzing the impact of social capital at the micro-economic sector. The

influence of social capital at the micro-economic development can be seen at the level of

families, companies and communities. At the family level, social capital is used especially

among the poor, to ensure the disease environment, harsh climate and government

restrictions. In such cases social capital encourages the pooling of resources such as food,

loans, etc.. In addition, good informal relationships enable the poor to start small business

and increase revenue. The influence of social capital on firm level is manifested through

the dense business networks that encourage economic cooperation and build trust between

economic agents. Social capital positively affects the productivity of firms to exchangevaluable information about products and markets and reduces the cost of contracting,

regulation and enforced collection. Repeating business transactions and business reputation

promote sides of acting in order to achieve mutual benefits. Social capital, created among

firms, significantly reduces business risks. It allows the exchange of valuable information

about products and markets and reduces the cost of contracting, regulation and enforced

collection. As we know from Coase theory of the firm, one of transaction costs incurred in

terms of market mechanism are the costs of incomplete contracts (Coase 1937). Signing a

contract entails a dose of uncertainties, regarding the future state in which the laws and

clauses will be applied. For example, the contract may specify the delivery of certain

quantities of inputs at a specified price at some future date, and that no party knows with

certainty if the market prices of inputs and outputs will be produced on that day. A possible

solution would be to include in the contract each possible pair of market prices of outputs

and inputs. This kind of contract is called a complete understanding or agreement.However, in practice contracts are rarely complete for several reasons. The first reason is

the high cost and time used for compiling a list of all possible pairs of unpredictable cases.



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Another reason may pose some unforeseen events that took place, and could not be verified

by a third-hand court. In these situations, developed commercial network, with significant

stocks of social capital, eliminate or significantly reduce the risk factors. Social capital also

facilitates the implementation of collective projects, because it reduces the risk of free

riding and stronger interpersonal trust. According to Martin Raiser, firms belonging to

networks increasingly avoid free riding , in order not to lose a reputation of reliability

(Raiser 1999). Social capital encourages and facilitates the pooling of resources and access

to alternative credit activities to those residents who were denied access to formal financialinstitutions. Several projects, based on increasing the stock of social capital, were

conducted in Tanzania, Rwanda, Cambodia, Bolivia and Nicaragua under the auspices of

the World Bank (The Initiative for Social Capital 2000). Consequently, in the field of

Management, social capital leads to greater efficiency compared to traditional

organizational models. Thus, in firms with Taylorian organizational form (Taylor 1929.),

information is delayed or distorted while being transferred through a strict hierarchical

chain of command. Taylorian form is increasingly replaced by a flexible management

structure in which responsibility is transferred to each of the sectors in the company. In that

way, workers are forced to make decisions independently, because they are not constantly

obliged to consult their superiors in the hierarchical chain. Such organization of the

company increases efficiency but on the other hand, it depends on the stock of social

capital workforce. In such situations, lack of trust between social workers and managers

can lead to opportunism and paralyze production. The Norwegian-Italian study from 2006.examined the influence of human and social capital on productivity (Greeve et al 2006) .

The survey was conducted in three organizations involved in research and development

(R&D) and provided consulting services. Analysis included the Italian company "GESTO",

which provide business consulting services and two Norwegian companies "ALPHA" and

"BETA" for applied research and consulting in the fields of economics and social sciences.

ALPHA is more concerned with applied research and consulting than BETA, where more

emphasis is made on applied research work. GESTO and ALPHA are profitable

organizations while BETA is non-profit. The BETA rewarding of employees is in relation

to academic satisfaction and participation in projects. Within the database for the

companies ALPHA and BETA were analyzed: employee participation in projects, salaries,

working hours on projects and the number of permanent employees. The database for

BETA contained even information about published works. The dependent variable for

measuring productivity in the firm GESTO was measured by average number of daysrequired to complete the project (which was 19 days per project) and the average number of

completed projects within one year (14). The average employee in the ALPHA completed

20 projects for one year. In the ALPHA is measured the productivity of each individual

through the payment per hour for participating in the project expressed in NOK.15

Since

BETA is a nonprofit organization, the variable of productivity is measured by the weighted

”publishing index” which has the following composition: articles published in international

academic journals (4), articles in the Norwegian and Nordic academic journals (3), the

number of international chapters in academic books (3), research reports (2) and BETA

working papers (1) (Greve et al 2006). In the study, the independent variables were selected

this way: 1. human capital, 2. tenure to measure effects of experience and 3. social capital.

In the firm GESTO, data on the social capital were obtained via an online questionnaire

which was tested over 52 employees. The questionnaire covered the following topics:

general staff contacts at the time of starting the project, getting advice while working on the

15 Norwegian Krone



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project, providing advice during the work on the project, contacted with alters in the past

two months, contacted alters at the time of commencement of the project, general advisory

relationship and social relationship. In the case of companies ALPHA and BETA

employees were asked two questions: ”From whom did you get advice at the time of

starting the project?” and ”Who advised you during the project work and research

questions?”. The study examined several hypotheses, but the most important for our

analysis is the next one: H*: ”The Social capital has a direct impact on productivity. People

with more social capital will be more productive than those having less of it.” (Greve et al.2006). After the regression analysis, it is demonstrated the positive impact of social capital

on productivity. in all three cases. Common to all three organizations is that social capital

has a major contribution to productivity in comparison with other observed variables.

Additional reasons should be looked for in nature of work these three organizations go in

for. All three organizations run most of the projects, unless they are ordered from other

companies and institutions. Working teams in these organizations are small and the

imperative is the ability to get advice from others in order to create greater productivity.

Social capital, in the form of opportunities to establish direct business contacts, affects

more access to information, discovers new opportunities, learning from the mistakes that

other people have previously made and enables more efficient troubleshooting and

fulfilling tasks.

3. Measuring Belgrade Entrepreneurs’ Trust and Its Influence On BusinessDuring The Global Economic Crisis

In this chapter it is presented part of the survey we carried out in 2011. about

institutional, financial and stakeholders’ trust of Belgrade micro and small entrepreneurs

before and during the Global economic crisis. Beside, we also examined the influence of

previous variables on business parameters such as: investment trend, business extent and

entrepreneur real earnings. As a methodological instrument it is used a questionaire16

. In

the survey it is started from the following hypotheses:

H1 : Institutional trust of Belgrade entrepreneurs is on a low level

H2: Index of financial trust and investment trend for next 6 months are in a positive

correlation

H3: Index of financial trust and business extent of enterprises are in a positive correlation

H4: Index of financial trust and real salary of entrepreneurs are in a positive correlation

As for institutional trust, it is measured in 19 institutions conected in a direct or indirect way with functioning of economic and financial spheres. For measuring it is used

4-level Likert scale which is defined the following way: 1. do not trust at all, 2. do not

have enough trust, 3. have trust and 4. trust completely. The hypothesis H1 will be rejected

if a majority of respondents have trust in more than 50% of institutions offered. Trust

existence in each of the institutions implies that share of the answers which express

institutional trust (sum of responses: ”have trust” and ”trust completely”expressed in

percents) exceeds the share of answers which express institutional mistrust (sum of

responses:”do not trust at all” and ”do not have enough trust” expressed in percents).

To the question: ”Will you please quote how high is your trust degree in each of the

following institutions”, to the least degree respondents believe in political parties(3,1%),

Agency for privatization (6,1%), Republic parliament (7,7%) and Serbian government

(10,8%):

16The sample included owners and managers of 65 small and micro private enterprises

(from 1 to 100 employees) in the seven municipalities of Belgrade



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Do not trust

at all %

Do not have

enough trust%

Have

trust %

Trust

completely %

Commercial Banks 23,1 41,5 33,8 1,5

Large Companies 38,5 43,1 18,5 0

Central Bank (NBS) 23,1 36,9 40 0Municipal

Administration 29,2 40 30,8 0

Public Utility Companies 23,1 43,1 33,8 0

Serbian Government 49,2 40 10,8 0

Republic Parliament 52,3 40 7,7 0

Belgrade Stock Exchange 26,2 56,9 16,9 0

Ministry of Treasury 41,5 41,5 16,9 0

Ministry of Economy 46,9 36,9 16,9 0

Privatization Agency 56,9 36,9 4,6 1,5

Statistical Office of

Serbia 33,8 32,3 33,8 0

Political Parties 75,4 21,5 3,1 0

Serbian Chamber of

Economy 36,9 44,6 18,5 0

Belgrade Chamber of

Economy 35,4 44,6 20 0

Agency for Business

Registers 21,5 26,2 49,2 3,1

Agency for MSE 35,4 47,7 16,9 0

Investment Funds 36,9 49,2 13,8 0

Voluntary Pension

Funds 32,3 40 27,7 0

Table 1. Institutional trust of Belgrade entrepreneurs during the global economiccrisis

Practically 75.4% of respondents do not trust political parties at all, 56.9% do not

trust Agency for privatization and 52.3% of them mistrust the Republic Parliament.

Speaking about institutions directly connected with economic and financial spheres, some

better results are achieved in the case of the Agency for business registers, Central bank

and commercial banks (due to the reforms in Serbian banking sector, and because of

measures for increasing work efficency in the Agency for business registers in the period

2008-2010). Finally it could be concluded that majority of respondents do not trust 18 out

of 19 institutions. So it can be stated that hyphotesis H 1 is confirmed. In order to test

differences within trust level in the same institutions the period before the recession in

Serbia, we put the following question: ”Related to the period before the recession in Serbia

(4th quarter of 2008.) – is your present trust with these institutions much lower, lower,without change, greater or much greater”, they answered following way (Table 2)



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Much

lower %

Lower % Without

change %

Greater

%

Much

Greater %

Commercial

Banks 20 27,7 50,8 1,5 0

Large

Companies 27,7 24,6 46,2 1,5 0

Central Bank

(NBS) 20 26,2 52,3 1,5 0

Municipal

Administration 18,5 23,1 56,9 1,5 0

Public Utility

Companies 16,9 30,8 52,3 0 0

Serbian

Government 26,2 24,6 49,2 0 0

Republic

Parliament 26,2 26,2 47,7 0 0

Belgrade Stock

Exchange 18,5 24,6 55,4 1,5 0

Ministry of

Treasury

24,6 27,7 47,7 0 0

Ministry of

Economy 21,5 27,7 50,8 0 0

Privatization

Agency 26,2 26,2 47,7 0 0

Statistical

Office of

Serbia

13,8 23,1 63,1 0 0

Political

Parties 30,8 21,5 47,7 0 0

Serbian

Chamber of

Economy

15,4 26,2 58,5 0 0

BelgradeChamber of

Economy

15,4 24,6 58,5 1,5 0

Agency for

Business

Registers

12,3 21,5 63,1 1,5 1,5

Agency for

MSE 16,9 29,2 53,8 0 0

Investment

Funds 20 30,8 49,2 0 0

Voluntary

Pension Funds 21,5 21,5 56,9 0 0

Table 2. Institutional trust of Belgrade entrepreneurs now vs. before the recession

According to the analogy with replies from table 1, a great percent of answers in

the column ”without change” testifies low institutional trust in the period before the



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recession, too. On the other hand, a trend of further trust decreasing is evident in

institutions such as: Republic Parliament and Agency for privatization (with 52% of

respondents), Ministry of Finance, large companies and political parties (with 52.3% of

respondents), investment funds (with 50,8% of respondents) and Ministry of Economy

(with 49.2% of respondents), etc. The next part of survey was related to enterprise business

parameters. To the question: ”Are you planning to reduce, leave unchanged or increase

your investments in business in the next 6 months”, the respondents answered the following

way (Table 3.)

Investment trend for next

6 months

Frequency Valid Percent

Reduce 12 18.5

Status quo 47 72.3

Increase 6 9.2

Total 65 100.0

Table 3. Investment trends for next 6 months

The majority of them (72.3%) will keep an investment status quo, 18.5% of

respondents will reduce investments while 9.2% will increase theit investment in the 6

months. To the question: ” Related to the period before the recession in Serbia is business

extent of your firm significantly less, slightly less, without change, slightly increased or

significantly increased”, most of respondents faces the recession consequences (Table 4.)

Extent of Business Percent

Significantly decreased 52,3

Slightly decreased 38,5

Without change 7,7

Slightly increased 1,5

Table 4. Business extent of enterprises related to period before recession

In order to examine etrepreneurs` real earnings we put the following question:

”Related to the period before the recession in Serbia (4

th

quarter of 2008.) is your real salary now significantly decreased, slightly decreased, without change, slightly increased

or significantly increased”, 61.5% of respondents state that earning was significantly

decreased, 30.8% state that it was slightly decreased, 4.6% of them state that salary was

without change, while 3.1% state the earning was increased (Table 5.)

Real salary now vs. Before

the crisis

Frequency Percent

Significantly decreased 40 61.5

Slightly decreased 20 30.8

Without change 3 4.6

Slightly increased 2 3.1

Table 5. Real salary of entrepreneurs now vs. Before crisis

To examine a relation between business variables and financial trust of entrepreneurs, we

have created an index of financial trust (I ft). It is synthetical index whose components



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unclude trust measures in four financial institutions having the greatest significance for

running business: trust in banks, trust in Central bank, trust in Ministry of Finance and trust

in investment funds. The final model was set up as follows:

Ift = Pb + Pcb + Pmf + Pi (equation 1)

Pb - Trust in banks; Pcb - Trust in Central bank; Pmf - Trust in Ministry of Finance;

Pi - Trust in Investment Funds

The trust in institutions were weighted with: 5 : 3 : 2 : 1 respectively. To test hyphohesis H 2

a correlation analysis was done between the Index of financial trust and entrepreneurs’investment trend (Table 6)

Correlations

Index of

Financial

Trust

Investment trend

for the next 6

months

Index of Financial Trust Pearson Correlation 1 .298*

Sig. (2-tailed) .016

N 65 65

Investment trend for the next

6 months

Pearson Correlation .298 1


N 65 65

*. Correlation is significant at the 0.05 level (2-tailed).

Table 6. Correlation between the Index of financial trust and Entrepreneurs`

investment trend

As it is seen on the table 6, a significant linear correlation was found, showing a direct

linear relation between the index and entrepreneurs’ investment trend. To test hypothesis

H3, a correlation analysis was done between the Index of financial trust and business extent.

As a result, it was achieved a more significant Pearson coefficient value (Table 7.)

Correlations

Index of

Financial

Trust

Business extent

of

enterprise

Index of Financial Trust Pearson Correlation 1 .393**


N 65 65

Business extent of

enterprise

Pearson Correlation .393**

1


N 65 65

**. Correlation is significant at the 0.01 level (2-tailed).Table 7. Correlation between the Index of Financial Trust and business extent of

enterprise



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To test hypothesis H4 it was done a correlation analysis between the Index of

financial trust and the variable: ”real salaries now vs. before the crisis” (Table 8.)

Index of

financial

trust

Real salaries now

vs. before the

crisis

Index of financial trust Pearson Correlation 1 .298


N 65 65

Real salaries now vs. before

the crisis

Pearson Correlation .298 1


N 65 65

*. Correlation is significant at the 0.05 level (2-tailed).

Table 8. Correlation between the Index of financial trust and changes in real salaries

Also, it was received a significant Pearson coefficient value (.298*) which

indicates the existence of a direct linear relationship between these two variables.

In the survey was also examined entrepreneurs’ trust in the followingstakeholders: suppliers, competitive firms, foreign investors, consumers and employees of

the firms. Generally, the majority of respondents (81.6%) has trust in suppliers, customers

(70.7%) and employees in their firms (79.4%):

Trust Level Suppliers Competitive

Firms

Foreign

Investors

Consumers

No Trust at all % 1,5 18,5 32,3 3,1

Not enough Trust % 16,9 50,8 49,2 26,2

Have Trust % 55,4 29,2 18,5 56,9

Have Complete Trust % 26,2 1,5 / 13,8

Table 9a. Trust in suppliers, competitive firms, foreign investors and consumers

during the global economic crisis

Table 9b. Trust in employees in respondents’ firms

Trust Level in

employees

Percent of

entrepreneurs

No Trust at all

%

1.7

Not enough

Trust

%

19.0

Have Trust

%

46.6

Have

Complete

Trust %

32.8



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To the question: ”Related to the period before the recession in Serbia (4th

quarter

of 2008.) – is your present trust in the same people much less, less, without change, greater

or much greater”, most of the respondents have the same trust in stakeholders. However,

concerning the period before the crisis a decreasing trend was registered with suppliers

(16.9% of respondents), with competitive firms (24.7%), with foreign investors (27.7%),

with consumers (21.5%) and the employed (10.3%). In the period of economic crisis, a

good recipe for keeping business stability of small companies presents winning an

preserving loyality of suppliers, employed people as well as consumers. For the analysisrequests, an index of stakeholders’loyality has been created. Its components consists of 3

components such as: trust in consumers, trust in suppliers and trust in employees with

weights 5 : 4 : 4 respectively

Isl = Pc + Ps + Pe (equation 2)

We have started from the following hyphothesis H5: The Index of

Stakeholders’Loyality makes an influence on a change of a dependante variable ”the

change of real salaries with the reference to the period before the recession”. Model of

linear regression has been put the following way:

yi = β0 + β1xi + εi (equation 3)

yi = dependant variable (real salary)

β0 = y intercept

β1 = slopexi = predictor (index of stakeholders` loyalty)

εi = error in the observed value for the i cases

After the regression, the next results are received (Table10)

Model Summaryb

Model R

Coefficient

of

determination

R 2

Adjusted R 2

Standard Error of

the Estimate

1 .222a .049 .032 .695

a. Predictors: (Constant), Index of Loyalty

b. Dependent Variable: Real salary now vs. before the crisisTable 10. Excerpt from the regression analysis

As it can be seen, low values are received for the coefficient (R = 0.22) together

with the coefficient (R 2

= 0.049), so we can conclude that the hypothesis H5 was not

confirmed. It means that entrepreneurs associate crisis cause with financial trust more than

trust with stakeholders.

4. Conclusion

The text puts emphasis on the measurement of trust and its impact on business

operations of firms in Belgrade during the global economic crisis. Based on survey results,

most entrepreneurs have no confidence in 18 out of 19 institutions that are directly or

indirectly related to economic and financial sphere. This negatively affects the creation of

business environment and business operations of firms. In relation to the period before the

recession in Serbia, the trust of entrepreneurs mostly fell in the Parliament, thePrivatization Agency, Ministry of Finance and the large companies. With the great majority

of entrepreneurs there was a decrease in the volume of business and real wages related to



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pre-recession period, whereas 18.5% of respondents intended to reduce their investment in

their own business. The study measured the correlation between the Index of financial trust

and the three business variables in firms. In all three cases, a significant positive correlation

was achieved. In the survey it is found that most respondents have trust in suppliers,

customers and employees, and that there is no trust in the competitive companies and

foreign investors. In relation to the period prior to 4th

quarter of 2008. there has been a

slight decline of trust in all of these stakeholders. In addition to it, the survey found that

more respondents associated the cause of crisis with institutional trust declining rather thanwith a lack of trust in stakeholders. Bearing in mind economic disparities in the state, it is

rational to expect that in other parts of Serbia stock of measured trust would be lower, and

the business environment and the firms’ parameters less qualitative.

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Documents

Vojislav Babic, Ekonomski fakultet, Univerzitet u Beogradu, Management and Trust During the GEC: The Case of Serbia