Trust in Financial Markets : Evidence from Reactions to Earnings News

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Journal / PublicationManagement Science
Online published7 Nov 2022
Publication statusOnline published - 7 Nov 2022


This paper studies the effect of trust on the perceived credibility of earnings news. Using earnings response coefficients, we find that firms located in low-trust regions of the United States experience significantly lower stock price reactions to earnings news. Additional tests indicate that managers can counterbalance investors’ dependence on trust by employing reputable auditors or signaling the quality of their earnings using dividends to improve the perceived credibility of their financial reports. Overall, our findings suggest that trust affects the pricing of earnings news in capital markets.

Research Area(s)

  • accounting, finance, asset pricing, economics, behavior and behavioral decision making