LAUSR

Abstract Global practices such as offshoring and expatriation of employees increase cross-cultural interactions within and across firms. In this paper, we use three experiments to investigate the effects of cultural differences on employees' interpretations of employers' contract choices. Applying insights from attribution theory, we predict that cultural differences will reduce the likelihood for employees to attribute employers' choice of a more-trusting contract to trust. This in turn will reduce the ability of such contracts to motivate higher employee effort. However, we also suggest that three interventions will mitigate the negative effect of cultural differences: employees' prior and primed exposure to employers' culture and employees' interactional cultural intelligence. In our labor market setting, employers chose a hiring contract for employees who, in return, indicated their effort levels. In all experiments, dyads interacted in real-time either in the same country or across two countries with high cultural difference. Consistent with our predictions, we find that the effectiveness of a bonus contract in increasing employees' effort is reduced by high cultural difference (in experiment 1). We also find that employees' exposure to employers' culture, either due to prior exposure (in experiment 2) or by priming exposure through culture-specific training (in experiment 3) has a mitigating effect. Finally, we find partial support that employees’ interactional cultural intelligence (CQ) has a mitigating effect. Implications to theory and practice are discussed.