Societal trust and firm-level trust: Substitute or complement? An international evidence

Using an international sample of 30,060 observations of firms from 32 countries, covering the period from 2004 to 2018, combined with a country-level index for societal trust, this study provides evidence that societal trust is negatively associated with corporate social responsibility (CSR), which in turn is a proxy for firm-level corporate trust-building investment. Further analyses show that firms in low-trust countries tend to invest more in CSR when they are owned by large foreign shareholders originating from low-trust countries. The negative impact of societal trust on CSR is pronounced for firms located in less stable countries. Overall, the results suggest that societal trust acts as a substitute to firm-level trust. From the perspective of risk management, the results confirm this study's argument that the marginal benefits of CSR-as-insurance are more crucial for firms located in low-trust countries.