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What Does It Mean When Managers Talk About Trust?

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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.

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Acknowledgements

We would like to thank two anonymous journal referees, Carol L. Osler, and participants of INFINITI 2018 in Poznań for their insightful comments and suggestions, which greatly improved the paper.

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  1. Department of Finance, RWTH Aachen University, Templergraben 64, 52056, Aachen, Germany

    Wolfgang Breuer, Andreas Knetsch & Astrid Juliane Salzmann

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  1. Wolfgang Breuer
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Correspondence to Andreas Knetsch.

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Breuer, W., Knetsch, A. & Salzmann, A.J. What Does It Mean When Managers Talk About Trust?. J Bus Ethics 166, 473–488 (2020). https://doi.org/10.1007/s10551-018-4072-2

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