Societal Trust and the Informativeness of Analyst Research

45 Pages Posted: 11 Jan 2015 Last revised: 4 May 2020

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Kiridaran (Giri) Kanagaretnam

York University - Schulich School of Business

Hongping Tan

McGill University

Date Written: May 1, 2020

Abstract

We study the relationship between societal trust and informativeness of analyst research in a cross-country setting. We predict and find that societal trust have both direct and indirect effects on the informativeness of analyst forecasts. The direct effect is that in societies with higher levels of trust, analysts are more likely to refrain from taking actions that may betray the trust that society has placed in them (analyst trust effect). The indirect effect of societal trust arises from the enhanced transparency in financial reporting of the underlying firms (firm trust effect). We find that the analyst trust effect remains strong after controlling for institutional characteristics at analyst domicile countries, and is more pronounced in the presence of perceived conflicts of interest. Additional analysis shows that the analysts who have changed their country locations converge towards the trust norms in the newly relocated countries. Our results should be of interest to investors and policymakers who are concerned about the efficient flow of information in capital markets.

Keywords: Societal trust, informal institutions, analyst research, conflicts of interest, informativeness, market reactions

JEL Classification: G24, O17, P48

Suggested Citation

Bae, Kee-Hong and Kanagaretnam, Kiridaran and Tan, Hongping, Societal Trust and the Informativeness of Analyst Research (May 1, 2020). Available at SSRN: https://ssrn.com/abstract=2547875 or http://dx.doi.org/10.2139/ssrn.2547875

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Kiridaran Kanagaretnam

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Hongping Tan (Contact Author)

McGill University ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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