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Trust and Stock Price Synchronicity: Evidence from China

Author

Listed:
  • Baoyin Qiu

    (Shanghai University of Finance and Economics)

  • Junli Yu

    (Shanghai Jiao Tong University)

  • Kuo Zhang

    (Shanghai Jiao Tong University)

Abstract

This paper investigates how social trust affects stock price synchronicity using a large sample of listed firms in China. We propose and provide evidence that social trust has a significantly positive impact on the amount of firm-specific information capitalized into stock prices. Further analyses indicate that firms located in regions of high social trust tend to have a smaller stock price crash risk and are less likely to engage in opportunistic behaviors than those in low-trust regions. Moreover, the positive role of trust in increasing firm-specific return variations and discouraging corporate misbehaviors is more pronounced for SOEs than Non-SOEs. Evidence from 2SLS regressions supports a causal impact of social trust on stock price synchronicity.

Suggested Citation

  • Baoyin Qiu & Junli Yu & Kuo Zhang, 2020. "Trust and Stock Price Synchronicity: Evidence from China," Journal of Business Ethics, Springer, vol. 167(1), pages 97-109, November.
    • Handle: RePEc:kap:jbuset:v:167:y:2020:i:1:d:10.1007_s10551-019-04156-1
    DOI: 10.1007/s10551-019-04156-1
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