Trust and monitoring

Simon Lesmeister, Peter Limbach and Marc Goergen

No 18-02, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: We show that in countries with more societal trust shareholders cast fewer votes at shareholder meetings and are more supportive of management proposals. This result is confirmed by instrumental variable regressions. It also holds at the U.S.-county level and for voting by U.S. institutional investors. Lower monitoring via voting relates less negatively to future firm performance in high-trust countries, suggesting that managers do not exploit greater discretion when trust is high. We also find a negative relation between trust and bond spreads. Our evidence supports theory arguing that trust substitutes for monitoring and has implications for investors' optimal monitoring effort.

Keywords: Culture; Monitoring; Shareholder expropriation; Shareholder voting; Societal trust (search for similar items in EconPapers)
JEL-codes: G19 G3 G32 (search for similar items in EconPapers)
Date: 2022, Revised 2022
New Economics Papers: this item is included in nep-hpe and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/261099/1/cfr-18-02rev.pdf (application/pdf)

Related works:
Journal Article: Trust and monitoring (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:1802

Access Statistics for this paper

More papers in CFR Working Papers from University of Cologne, Centre for Financial Research (CFR) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().