Abstract

http://ssrn.com/abstract=2480766
 


 



Trust, But Verify: MD&A Language and the Role of Trust in Corporate Culture


Robert Audi


University of Notre Dame - Mendoza College of Business

Tim Loughran


University of Notre Dame

Bill McDonald


University of Notre Dame - Mendoza College of Business - Department of Finance

August 14, 2014


Abstract:     
Trust is ethically important and essential for business, but difficult to measure. Several papers hypothesize that increasing its role within a corporation will lessen the need for external monitoring and contracts. To assess this, we need a way to gauge whether a firm has a trusting corporate culture. This paper provides one way to do that objectively. We develop a measure of trust in a firm’s corporate culture by counting the number of times 21 trust-related words appear in an important kind of document: the Management Discussion and Analysis section of the annual report. We report two significant findings: that, contrary to what one might think, firms with a trusting culture frequently use audit and control-type words and that trust is positively linked with subsequent share price volatility. We propose explanations of both findings.

Number of Pages in PDF File: 30

Keywords: Trust; ethics; corporate culture; corporate governance; audit; disclosures; textual analysis; monitoring.

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Date posted: August 16, 2014  

Suggested Citation

Audi, Robert and Loughran, Tim and McDonald, Bill, Trust, But Verify: MD&A Language and the Role of Trust in Corporate Culture (August 14, 2014). Available at SSRN: http://ssrn.com/abstract=2480766

Contact Information

Robert Audi
University of Notre Dame - Mendoza College of Business ( email )
Notre Dame, IN 46556-5646
United States
Tim Loughran (Contact Author)
University of Notre Dame ( email )
Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)
Bill McDonald
University of Notre Dame - Mendoza College of Business - Department of Finance ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
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