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| Free Stock Tips |
Trust matters, when it is all about money and money. Before
investing in any company’s stock you must be a master in investment skills and
have trust in that company. Publically traded companies establish their
trust by listing to the Stock Market. Traders open up and fund a stock
brokerage account with a broker that handles transactions on the public
exchange where the stock is listed.
Most of the profit sharing companies give private investment
opportunity or make trust by offering interested investors the opportunity to
make private loans.
We examine whether the level of trust in a country affects
investors' perception and utilization of information transmitted by firms
through financial disclosure. Specifically, we investigate the effect of
societal trust in investor reactions to corporate earnings announcements. We
test two competing hypotheses. On the one hand, corporate earnings
announcements are perceived as more credible by investors in more trusting
societies and, therefore, elicit stronger investor reactions. On the other
hand, societal trust mitigates outside investors' concern of moral hazard and
reduces the value of corporate earnings announcements to them, thereby
weakening their reactions to these events. We analyze the abnormal trading volume
and abnormal stock return variance during the earnings announcement period in a
large sample of firm-year observations across 25 countries, and we find that
both measures of investor reactions to earnings announcements are significantly
higher in more trusting countries. We also find that the positive effect of
societal trust in investor reactions to earnings news is more pronounced when a
country's investor protection and disclosure requirements are weaker,
suggesting that trust acts as a substitute for formal institutions; when a
country's average education level is lower, consistent with less educated
people relying more on trust in making economic decisions; and when firm-level
information asymmetry is higher, supporting the notion that trust plays a more an important role in poorer information environments.
