In Your Face We Trust? Trust and Information Production in Financial Markets

Abstract

Do corporate managers reveal more information to stock analysts who appear more
trustworthy? Do these analysts provide forecasts and recommendations that contain more
information? The answer is yes and yes. Analysts who appear more trustworthy are more
likely to be received by firms for site visits, during which they are more likely to meet with
high-ranking managers. These meetings are 10% more informative, and these analysts’
earnings forecasts are 30% more accurate. Their stock recommendations also generate
greater market reactions. The effect of facial trustworthiness is more pronounced when the
analyst is relatively unknown to the manager, such as when the analyst is new to the
profession or when the analyst and the firm manager do not share a similar background.
The effect is also more pronounced when the level of social trust is low.

Keywords: trust, trustworthiness, facial features, analyst, information production, financial markets

JEL Classification: G14, G24, G40, D83