Abstract: Corporate governance research usually focuses on the roles of formal control and monitoring mechanisms, while little attention has been paid on the roles of informal trust mechanism within agency relationships. Compared to formal governance mechanisms, trust mechanism is viewed to be more flexible. As argued by stewardship theory, it facilitates agency relationships with long-term orientation and can induce managers’ motivation to innovation. However, scant research has examined the role of trust between large shareholders and managers in shaping managers’ innovation intentions and abilities. Therefore, this paper focuses on two dimensions of such trust, namely affect-based trust and cognition-based trust, and researches the influencing mechanisms among trust, innovative motivations, and innovative abilities. Based on 174 Chinese firm samples, we find that both types of trust have positive but different influences on managers’ innovation capability, since the effect of affect-based trust partially mediated by managers’ innovative motivation. Then, this study discusses the findings of this paper and shares some insights into future research.

Key words: stewardship theory, affection-based trust, cognition-based trust, innovative capability, innovative motivation