Public Participation and Trust in Government: The Case of the Korean Financial Regulatory Agency

ABSTRACT

This study explores a theoretical model that focuses on the relationship between regulatee participation and trust in the financial regulatory agency through the mediation effects of transparency, fairness, competency, and independence. The research model uses the 2013 Financial Regulatory Agency Perception Survey, collected from employees of financial regulatees in South Korea (including banks, securities investment, insurance, and credit card companies). The results show that in financial regulatory governance, regulatee participation is positively associated with the regulator’s trustworthiness through the mediation of transparency, fairness, competency, and independence. This study contributes to the financial regulation area and democratic governance by connecting participatory decision-making with financial regulation and also suggests new managerial implications for financial regulators.

KEYWORDS:

• democratic governance
• financial regulation
• participatory decision-making
• public participation
• trust in government

Acknowledgment

The authors are indebted to Dr. Carol Ebdon and Dr. Bryce Hoflund for their helpful comments on the manuscript. We also wish to thank my colleague, Megan McGuffey, for reviewing and commenting on early drafts. We would like to thank the editors of Public Performance & Management Review and the anonymous reviewers for their constructive comments and criticisms.

Notes

Because the Korean financial rule-making system is open to the financial regulatees as well as professors, consultants, and citizens in advisory boards and committees, it is considered as public participation. However, this study surveyed only the financial regulates, due to the difficulty of collecting information from other participants. Thus, it uses regulatee participation but not public participation in financial rule-making. Our research should be understood in the context of regulatee participation.

Many studies assume that participatory decision-making encompasses stakeholders, interest groups, and the entire public, but they do not identify participatory decision-making as representing either particular groups or the entire public (Berman, 1997; Miller, 2012; Piotrowski & Van Ryzin, 2007; Wang & Berman, 2001; Wang & Wan Wart, 2007; Wichowsky & Moynihan, 2008; Yang & Callahan, 2005).

There is not sufficient literature to theoretically support our conceptual model comprising regulatee participation, financial regulatory management, and trust in the financial regulatory agency if the literature is limited to stakeholders’ participation. Thus, we mostly reviewed literature on public participation but not on special-interest groups’ participation; instead, the term participatory decision-making is used to clearly focus on the institution-oriented approach but not the participant-oriented approach to public participation.

It should be noted that Harman’s single-factor test is more likely to reject common method bias as the number of variables increases. Criticizing many significant limitations of the single-factor test, Jakobsen and Jensen (2015) emphasize that the test is not sufficient to assess the problems of common method bias.

Many researchers (e.g., Bagozzi & Yi, 1988; Kline, 2005) point out that the χ² statistic is not a very useful fit index with severe limitations on its use. Most important, if the sample size is large, the χ² statistic becomes significant and nearly always rejects the model even though discrepancies between the sample covariance and fitted covariance matrices are trivial. In addition, as the number of observed variables increases, the χ² statistic tends to be larger. To deal with the restrictiveness of the χ² statistic, therefore, alternative measures of model fit need to be considered to determine whether the model fit is acceptable (Kline, 2005).

This study also examined the moderating effect of transparency in the relationship between regulatee participation and trust in the financial regulatory agency. To test this moderating effect, all possible products of the measured indicators between regulatee participation and transparency were computed as indicators of a latent interaction variable. As a result, 16 interaction indictors were created for the interaction variable. The result indicates that the goodness-of-fit statistics were not satisfactory: RMR (0.06), NNFI (0.72), CFI (0.74) and RMSEA (0.12), although the path from “participation × transparency” was statistically significant with very small effect (β = −0.07, t = −2.30, p < 0.05).

In this study, the self-report questionnaire was appropriate for measuring perceived “private event,” including trust, participation, and the other perceptual variables (Conway & Lance, 2010). In addition, the study carefully examined the reliability of the observed indicators and convergent and discriminant validity, thus providing strong evidence for construct validity. Despite these efforts, common method bias may still be a significant concern in this kind of study because of its use of a common source to measure both the independent and dependent variables (Jakobsen & Jensen, 2015). Thus, common method bias needs to be addressed more carefully and systematically in future studies.

Additional information

Notes on contributors

Junseop Shim

Junseop Shim is a Professor at the College of Public Service at Chung-Ang University in Korea. He earned his Ph.D. degree from the State University of New York at Albany. His research interests include regulatory policy, nuclear energy policy, and conflict management.

Ji-Hyung Park

Ji-Hyung Park is an Assistant Professor in the Department of Political Science at James Madison University, Harrisonburg, Virginia. He earned his Ph.D. degree from the University of Nebraska at Omaha. His research areas are public budgeting and finance and urban management, focusing on citizen participation, form of government, fiscal health, performance budgeting, revenue diversification, and city-county consolidation. His recent article is published in Public Finance and Management.