What Does It Mean When Managers Talk About Trust?
Journal of Business Ethics 166,473-488, 2020
46 Pages Posted: 21 Jul 2018 Last revised: 15 May 2023
Date Written: November 12, 2018
Abstract
This paper investigates whether managerial rhetoric in the Management Discussion & Analysis section of 10-K filings can help gauge the level of managerial opportunism in a firm. We find that the use of trust-related words is connected to inefficient investment decisions and poor operating performance. Furthermore, firms making more frequent use of trust-related words are subject to less monitoring by institutional investors or analysts. Their accounting also relies more heavily on discretionary accruals. These results are consistent with the notion that managerial rhetoric to advertise trustworthiness points towards agency problems plaguing the firm.
Keywords: agency problems, behavioral finance, textual analysis, trust
JEL Classification: G30, G41
Suggested Citation: Suggested Citation