Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/261099 
Year of Publication: 
2022
Series/Report no.: 
CFR Working Paper No. 18-02
Version Description: 
Vers. 06/2022
Publisher: 
University of Cologne, Centre for Financial Research (CFR), Cologne
Abstract: 
We show that in countries with more societal trust shareholders cast fewer votes at shareholder meetings and are more supportive of management proposals. This result is confirmed by instrumental variable regressions. It also holds at the U.S.-county level and for voting by U.S. institutional investors. Lower monitoring via voting relates less negatively to future firm performance in high-trust countries, suggesting that managers do not exploit greater discretion when trust is high. We also find a negative relation between trust and bond spreads. Our evidence supports theory arguing that trust substitutes for monitoring and has implications for investors' optimal monitoring effort.
Subjects: 
Culture
Monitoring
Shareholder expropriation
Shareholder voting
Societal trust
JEL: 
G3
G19
G32
Document Type: 
Working Paper

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