In Companies We Trust: Cheap Talk or Genuine Virtue?

Bishal Bc and Thuy Simpson
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Bishal Bc: Grand Valley State University, Michigan, U.S.A.
Thuy Simpson: Grand Valley State University, Michigan, U.S.A.

American Business Review, 2025, vol. 28, issue 2, 592-617

Abstract: This paper examines how corporate narratives support either the impression management hypothesis or the incremental information hypothesis by analyzing the frequency of trust words used in the Management Discussion and Analysis (MD&A) section of 10-K filings. By directly linking trust language to actual fines and violations enforced by more than 400 federal, state, and local regulatory agencies in the U.S. from 2010 through 2023, we find that firms using more trust words in their MD&A tend to incur higher monetary penalties. We also document a significant link between increased use of trust words and poorer firm performance. Additional analyses reveal intriguing patterns: firms that use more trust words are (1) more likely to operate in 'sin' industries such as tobacco, alcohol, and gaming, and (2) more prone to incorporate a higher frequency of buzzwords into their communication. Overall, our findings support the impression management hypothesis, emphasizing how companies may strategically use language to influence perceptions.

Keywords: Trust; Financial Performance; Violations; Impression Management; Textual Disclosures (search for similar items in EconPapers)
JEL-codes: D18 L10 M30 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ambsrv:021862

DOI: 10.37625/abr.28.2.592-617

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