Trust and Contracting: Evidence from Church Sex Scandals
Journal of Business Ethics
42 Pages Posted: 13 May 2015 Last revised: 9 Nov 2021
Date Written: September 1, 2020
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: Suggested Citation