The Role of Trust in Information Processing: Evidence from Security Analysts
76 Pages Posted: 2 Nov 2014 Last revised: 7 Aug 2018
Date Written: July 31, 2018
Does an equity analyst’s trust in others impact the processing of information from outside sources? We investigate this question using a measure of trust based on surveys conducted in analysts’ countries of origin. We find that more trusting analysts not only react faster to management guidance and earnings announcement, they also weight information from management and other analysts more heavily than less trusting analysts. This results in a non-linear inverted-U relationship with forecast accuracy. Analysts with low trust place too little weight on outside information while analysts with high trust place too much weight, and are thus both less accurate than “medium” trust analysts. This effect on accuracy is weaker for those with more on-the-job experience, indicating that analysts rely less on their cultural trust beliefs as they learn more about the quality of information sources.
Keywords: trust, information processing, management guidance, analyst accuracy, culture
JEL Classification: G29
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