The Role of Trust in Information Processing: Evidence from Security Analysts

76 Pages Posted: 2 Nov 2014 Last revised: 7 Aug 2018

See all articles by Vineet Bhagwat

Vineet Bhagwat

George Washington University - Department of Finance

Xiaoding Liu

Texas A&M University - Department of Finance

Date Written: July 31, 2018

Abstract

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

Suggested Citation

Bhagwat, Vineet and Liu, Xiaoding, The Role of Trust in Information Processing: Evidence from Security Analysts (July 31, 2018). Available at SSRN: https://ssrn.com/abstract=2517753 or http://dx.doi.org/10.2139/ssrn.2517753

Vineet Bhagwat (Contact Author)

George Washington University - Department of Finance ( email )

2023 G Street
Washington, DC 20052
United States

Xiaoding Liu

Texas A&M University - Department of Finance ( email )

Texas A&M University
College Station, TX 77843
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
202
rank
146,959
Abstract Views
1,065
PlumX Metrics