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. (shrink)

The underrepresentation of females on corporate boards is an important ethical issue that raises serious concerns about gender equality in senior management teams. Relying on a large sample of public firms from the Chinese market, we examine how social trust affects female board representation. We find that female board representation has a positive and significant relation with social trust. The effect is more pronounced in regions with a higher male-to-female sex ratio at birth, lower levels of education, lower GDP per (...) capita, and in nonfamily firms. We also find that higher social trust is more likely to increase the number of non-independent female directors rather than independent ones. Further analyses show that increased female board representation is an important channel through which social trust improves corporate ESG ratings. Overall, our study suggests that social trust contributes positively to gender diversity in corporate management. (shrink)

Using a novel Chinese gambler conviction database to proxy the local gambling preference, we examine the impact of gambling preference on the disclosure of key audit matters (KAMs). Our findings suggest that the number of KAMs is significantly greater for firms in cities with a strong gambling preference than for firms in cities with a weak gambling preference. Our results are consistent with the view that firms located in areas with a sin culture may improve the quality of their financial (...) reports to overcome their stigmatized image. Additional analysis suggests that large audit firms, shorter audit terms, and closer audit-client distance strengthen the positive relationship between the gambling preference and the disclosure of KAMs. Namely, audit firms with a good reputation, strong independence, and information advantages play a more significant role in “destigmatization”. Finally, we show that auditors charge more audit fee and exert more audit effort towards clients located in areas with a strong gambling preference. This finding suggests that attempts by firms that are affected by a sin culture to achieve “destigmatization” by improving the quality of their financial reports are also costly. (shrink)