Social trust and corporate innovation: An informal institution perspective

We examine the effect of social trust on corporate innovation. We find a positive relation between social trust and corporate innovation. This association survives a series of robustness checks concerning alternative measures, omitted variable issues, instrumental variable regressions, difference-in-differences tests, placebo tests, etc. We also identify that social trust promotes corporate innovation through the following three economic channels: motivating managers in the long term, mitigating financial constraints, and promoting cooperative culture. Moreover, we show the positive effect of social trust on a more comprehensive text-based measure of innovation (Bellstam et al., 2021) and that innovative business practices strengthen the association between social trust and innovation.