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Trust and Investment Loss: Evidence from UK Financial Corporate Failures

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  • Kosova, Renata
  • Michaelides, Alexander

Abstract

How does experiencing direct investment loss affect individuals’ trust in the financial system? Exploiting recent UK corporate financial failures that generated press headlines, government debates and institutional criticisms, we design and analyse a survey involving investors in these failures. We find that direct exposure to investment losses significantly reduces trust in financial markets, regulators, big audit firms, and the likelihood of future risky asset market participation. Moreover, trust loss is not fully reversible even with possible compensation. Individual characteristics are not the key drivers of trust losses/gains either. We also survey master’s students exposed to reading about these failures. Information about losses of others reduces trust but less than direct experience. Overall, our results emphasize the role of personal experience in determining trust and future investment decisions.

Suggested Citation

  • Kosova, Renata & Michaelides, Alexander, 2026. "Trust and Investment Loss: Evidence from UK Financial Corporate Failures," CEPR Discussion Papers 21984, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21984
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    File URL: https://cepr.org/publications/DP21984
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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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