Trust and Certification in Financial Markets: Evidence from Reactions to Earnings News

44 Pages Posted: 12 Nov 2014 Last revised: 4 Mar 2018

See all articles by Chishen Wei

Chishen Wei

Singapore Management University - Lee Kong Chian School of Business

Lei Zhang

University of Queensland - Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 2, 2018

Abstract

We test whether trust affects how investors process financial information around earnings announcements. Using survey measures of social trust of local residents in the United States, we find that firms located in low trust regions experience significant under–reaction to earnings news. External certification – either by obtaining credit ratings or employing reliable auditors – helps to mitigate this effect. The passage of the Sarbanes–Oxley Act largely reduces the relation between trust and under–reaction to earnings surprises, highlighting the interconnection between trust, certification, and investor perceptions.

Keywords: Trust, Earnings Reactions, Auditor Quality, Sarbanes-Oxley Act

JEL Classification: G12, G14, G18, M41, M49, Z1

Suggested Citation

Wei, Chishen and Zhang, Lei, Trust and Certification in Financial Markets: Evidence from Reactions to Earnings News (March 2, 2018). Available at SSRN: https://ssrn.com/abstract=2469034 or http://dx.doi.org/10.2139/ssrn.2469034

Chishen Wei (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore
Singapore

Lei Zhang

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
274
Abstract Views
1,412
rank
78,661
PlumX Metrics