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What Does It Mean When Managers Talk About Trust?

Author

Listed:
  • Wolfgang Breuer

    (RWTH Aachen University)

  • Andreas Knetsch

    (RWTH Aachen University)

  • Astrid Juliane Salzmann

    (RWTH Aachen University)

Abstract

This paper investigates whether managerial rhetoric in the Management Discussion and 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.

Suggested Citation

  • Wolfgang Breuer & Andreas Knetsch & Astrid Juliane Salzmann, 2020. "What Does It Mean When Managers Talk About Trust?," Journal of Business Ethics, Springer, vol. 166(3), pages 473-488, October.
    • Handle: RePEc:kap:jbuset:v:166:y:2020:i:3:d:10.1007_s10551-018-4072-2
    DOI: 10.1007/s10551-018-4072-2
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    More about this item

    Keywords

    Agency problems; Behavioral finance; Textual analysis; Trust;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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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