Societal Trust and Information Timeliness: International Evidence

Abstract

We investigate the association between societal trust and the timeliness with which value-relevant information is incorporated into stock price with a large sample of observations collected from 38 countries between 2000 and 2019. We find that in high trust countries, positive (negative) value relevant information is impounded into stock price in a less (more) timely manner, mitigating imbalanced optimistically biased information timeliness (IOBIT). Results from robustness checks lend strong support to our inferences. Further analyses suggest that the relation between trust and IOBIT is more pronounced in emerging countries and in countries with weak investor protection, and lower levels of religiosity. The relation between trust and IOBIT is less pronounced in firms with strong corporate governance and lower managerial ability. Taken together, our study highlights the significant role that trust plays in affecting the efficiency of capital markets.

Keywords: Trust; Information timeliness; Imbalanced optimistically biased information timeliness (IOBIT); Corporate governance; Investor protection

JEL Classification: G14, G15, G28, G30