Trust and Contracting: Evidence from Church Sex Scandals

Journal of Business Ethics

42 Pages Posted: 13 May 2015 Last revised: 9 Nov 2021

See all articles by Gilles Hilary

Gilles Hilary

Georgetown University - McDonough School of Business

Sterling Huang

Singapore Management University - School of Accountancy

Date Written: September 1, 2020

Abstract

Firms located in communities in which people are, on average, more trusting enjoy some benefits in terms of the power of CEO contracts. We present two pieces of empirical evidence to support this claim: (1) higher average trust in a county is associated with “flatter” executive contracts; and (2) when an exogenous shock occurs (such as a scandal involving an important social institution), both trust and contracting move in similar directions. We obtain the first result in a panel specification and the second in a “difference-in-difference” specification that uses the revelation of sex scandals involving the Catholic Church across different U.S. localities.

Keywords: trust; executive compensation; contract design; incomplete contracts; Church Scandals; Community Trust

JEL Classification: G32, J33, J41

Suggested Citation

Hilary, Gilles and Huang, Sterling, Trust and Contracting: Evidence from Church Sex Scandals (September 1, 2020). Journal of Business Ethics, Available at SSRN: https://ssrn.com/abstract=2604974 or http://dx.doi.org/10.2139/ssrn.2604974

Gilles Hilary

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Sterling Huang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
6808 7929 (Phone)

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