How important is establishing Business trust in Stock Market?

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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.

source:- https://www.sciencedirect.com/science/article/pii/S0304405X13002055