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

See all articles by Wolfgang Breuer

Wolfgang Breuer

RWTH Aachen University

Andreas Knetsch

Leibniz Institute for Financial Research SAFE; RWTH Aachen University

Astrid Juliane Salzmann

Catholic University of Lille - IESEG School of Management; RWTH Aachen University - Department of Finance

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

Breuer, Wolfgang and Knetsch, Andreas and Salzmann, Astrid Juliane, What Does It Mean When Managers Talk About Trust? (November 12, 2018). Journal of Business Ethics 166,473-488, 2020, Available at SSRN: https://ssrn.com/abstract=3204621 or http://dx.doi.org/10.2139/ssrn.3204621

Wolfgang Breuer

RWTH Aachen University ( email )

Templergraben 55
D-52056 Aachen, 52056
Germany

Andreas Knetsch (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Astrid Juliane Salzmann

Catholic University of Lille - IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

RWTH Aachen University - Department of Finance ( email )

Templergraben 64
Aachen, 52056
Germany

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