Trust and contracting: Evidence from church sex scandals

• Main Authors: HILARY, Gilles, HUANG, Sterling
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: Church scandals; Community trust; Firm management; Accounting; Business Law, Public Responsibility, and Ethics; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/1986; https://ink.library.smu.edu.sg/context/soa_research/article/3013/viewcontent/trust.pdf
• Institution: Singapore Management University

Firms located in communities in which people are, on average, more trusting enjoy some benefits in terms of the power of CEO contracts. We present two pieces of empirical evidence to support this claim: (1) higher average trust in a county is associated with “flatter” executive contracts and (2) when an exogenous shock occurs (such as a scandal involving an important social institution), both trust and contracting move in similar directions. We obtain the first result in a panel specification and the second in a “difference-in-difference” specification that uses the revelation of sex scandals involving the Catholic Church across different U.S. localities.