Social Trust and Corporate Misconduct: Evidence from China

Abstract

We study whether greater social trust is associated with a lower incidence of corporate misconduct. Both social norm and network theory suggest that social trust can affect managerial behavior and reduce the likelihood of misconduct behavior. Consistent with this prediction, we find that social trust is negatively associated with corporate misconduct behavior. Moreover, we show that, when media coverage is higher, the negative relation between social trust and corporate misconduct behavior is more pronounced. Further analyses suggest that social trust can help mitigate both disclosure-related and nondisclosure-related misconduct.