Can We Trust the Trust Words in 10-Ks?

We examine the relation between earnings information content and the use of trust words, such as “ character ,” “ ethics ,” and “ honest, ” in the MD&A section of 10-K. We find that earnings announcements of firms using trust words have lower information content than earnings announcements of fi...

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Bibliographic Details
Published inJournal of business ethics Vol. 190; no. 4; pp. 975 - 992
Main Authors Cho, Myojung, Krishnan, Gopal V., Cho, Hyunkwon
Format Journal Article
LanguageEnglish
Published Dordrecht Springer Netherlands 01.04.2024
Springer Nature B.V
Subjects
Accounting
Announcements
Annual reports
Audit fees
Audit risk
Business and Management
Business Ethics
Companies
Corporate culture
Earnings
Education
Ethics
Hypotheses
Information content
Investments
Management
Original Paper
Philosophy
Quality of Life Research
Social responsibility
Text analysis
Words
Trust
10-K
Impression management
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Summary:We examine the relation between earnings information content and the use of trust words, such as “ character ,” “ ethics ,” and “ honest, ” in the MD&A section of 10-K. We find that earnings announcements of firms using trust words have lower information content than earnings announcements of firms that do not use trust words. We also find that the value relevance of earnings is lower for firms using trust words than those not using trust words. Further, firms using trust words are more likely to receive a comment letter from the SEC, pay higher audit fees, and have lower corporate social responsibility scores. Overall, our results suggest that firms that use trust words in the 10-K are associated with negative outcomes, and trust words are an inverse measure of trust.
ISSN:0167-4544
1573-0697
DOI:10.1007/s10551-023-05350-y