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Trust and Stock Price Synchronicity: Evidence from China

Research paper by Baoyin Qiu, Junli Yu, Kuo Zhang

Indexed on: 04 Apr '19Published on: 04 Apr '19Published in: Journal of Business Ethics



Abstract

This paper investigates how social trust affects stock price synchronicity using a large sample of listed firms in China. We propose and provide evidence that social trust has a significantly positive impact on the amount of firm-specific information capitalized into stock prices. Further analyses indicate that firms located in regions of high social trust tend to have a smaller stock price crash risk and are less likely to engage in opportunistic behaviors than those in low-trust regions. Moreover, the positive role of trust in increasing firm-specific return variations and discouraging corporate misbehaviors is more pronounced for SOEs than Non-SOEs. Evidence from 2SLS regressions supports a causal impact of social trust on stock price synchronicity.