Social trust and firm innovation*

Sadok El Ghoul, Gong, Zhaoran (Jason), Omrane Guedhami, Fangfang Hou and Wilson H.S. Tong

Journal of International Financial Markets, Institutions and Money, 2023, vol. 84, issue C

Abstract: We investigate whether social trust improves corporate innovation. Based on a comprehensive firm-level panel dataset of patents filed by companies from 43 countries over 1995–2015, we find that compared with firms in low-trust countries, firms in high-trust countries have higher innovation output as measured by number of patents and patent forward citations. We also find that greater trust is associated with i) higher levels of innovation investment, ii) less volatile innovation investment over time, and iii) weaker relation between innovation investment and internally generated cash flow. Finally, we document that greater trust is associated with higher market valuation of innovation investment and more efficient conversion of innovation investment into future sales. Overall, our firm-level evidence indicates that greater social trust improves corporate innovation and its outcomes.

Keywords: Trust; Corporate innovation; Innovation output; Innovation input (search for similar items in EconPapers)
JEL-codes: F30 G30 O30 Z10 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:84:y:2023:i:c:s1042443123000136

DOI: 10.1016/j.intfin.2023.101745

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