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Societal trust and firm-level trust: Substitute or complement? An international evidence

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  • Zhang, Cheng
  • Ho, Kung-Cheng
  • Yan, Cheng
  • Gong, Yujing

Abstract

Using an international sample of 30,060 observations of firms from 32 countries, covering the period from 2004 to 2018, combined with a country-level index for societal trust, this study provides evidence that societal trust is negatively associated with corporate social responsibility (CSR), which in turn is a proxy for firm-level corporate trust-building investment. Further analyses show that firms in low-trust countries tend to invest more in CSR when they are owned by large foreign shareholders originating from low-trust countries. The negative impact of societal trust on CSR is pronounced for firms located in less stable countries. Overall, the results suggest that societal trust acts as a substitute to firm-level trust. From the perspective of risk management, the results confirm this study's argument that the marginal benefits of CSR-as-insurance are more crucial for firms located in low-trust countries.

Suggested Citation

  • Zhang, Cheng & Ho, Kung-Cheng & Yan, Cheng & Gong, Yujing, 2023. "Societal trust and firm-level trust: Substitute or complement? An international evidence," International Review of Financial Analysis, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:finana:v:86:y:2023:i:c:s1057521923000595
    DOI: 10.1016/j.irfa.2023.102543
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    More about this item

    Keywords

    Societal trust; CSR; Social capital; Risk management;
    All these keywords.

    JEL classification:

    • F39 - International Economics - - International Finance - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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