Abstract

http://ssrn.com/abstract=2137957
 


 



Trust and Financial Reporting Quality


Jace Garrett


Bentley University - Department of Accountancy

Rani Hoitash


Bentley University - Department of Accountancy

Douglas F. Prawitt


Brigham Young University

May 28, 2014


Abstract:     
Using unique survey data from Great Place to Work® Institute, we investigate the association of intra-organizational trust (i.e., employees’ trust in management) with three aspects of financial reporting: accruals quality, misstatements, and internal control quality. We find that trust is associated with better accrual quality, lower likelihood of financial statement misstatements, and lower likelihood of internal control material weakness disclosures. However, these effects are not uniform across all companies. Consistent with trust improving financial reporting quality through enhanced information sharing, we find that trust is significantly associated with financial reporting quality in more decentralized firms, but not in firms that are relatively centralized. We provide evidence that our results are robust to several analyses that attempt to control for potential alternative explanations.

Number of Pages in PDF File: 50

Keywords: Trust; Information Sharing; Accruals; Internal Control; Misstatements

JEL Classification: M41

working papers series


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Date posted: August 29, 2012 ; Last revised: June 29, 2014

Suggested Citation

Garrett, Jace and Hoitash, Rani and Prawitt, Douglas F., Trust and Financial Reporting Quality (May 28, 2014). Available at SSRN: http://ssrn.com/abstract=2137957 or http://dx.doi.org/10.2139/ssrn.2137957

Contact Information

Jace Garrett
Bentley University - Department of Accountancy ( email )
175 Forest Street
Waltham, MA 02452
United States
Rani Hoitash (Contact Author)
Bentley University - Department of Accountancy ( email )
175 Forest Street
Waltham, MA 02452-4705
United States
Douglas F. Prawitt
Brigham Young University ( email )
Provo, UT 84602
United States
801-422-2351 (Phone)
801-422-0621 (Fax)
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