The Effect of Interpersonal Norms on Business Performance of Retail Traders in Gampaha District, Sri Lanka: Mediating Role of Transaction Costs

Scholars highlighted that interpersonal norms are essential to promoting social bonds that work as substitutes for legal bonds among exchange partners. Interpersonal norms encourage informal and unwritten agreements between business parties that influence the minimization of transaction costs among exchange partners, thereby enhancing their business performance. However, there is no sufficient empirical evidence in the context of Sri Lankan retail traders and how interpersonal norms affect the transaction costs, and thereby business performance. The current study attempts to address this empirical gap employing a quantitative method. Primary data was collected from 255 retail traders through pretested structured questionnaires with face-to-face interviews. Data was analyzed using Partial Least Squares Structural Equation Modeling (PLSSEM). Results revealed that there is a significant positive relationship between interpersonal norms and business performance of retail traders, together with a significant negative effect between interpersonal norms and transaction costs, and business performance. Results further exhibit that transaction cost has a partial mediating role in the relationship between interpersonal norms and business performance. Thus, the study statistically con-firmed the existing empirical understandings of the extensive influence of interpersonal norms on the business performance of retail traders by mitigating transaction costs. Eventually, the findings emphasize that strong interpersonal norms among exchange partners can enhance business performance through the decrease of transaction costs.