Trust radius and earnings surprises: With a humanistic approach to culture

Abstract

In global stock markets, I test a new measure of trust, national trust radius, and report
that it is better than the existing measure. In a country with larger trust radius, information
transmission is more efficient between earnings announcements and stock reactions. Tests based
on various windows of returns, re-calibrations of trust radius, 2SLS, and controls corroborate this
result. This tendency is most pronounced in Protestant regions, and least in Ex-Communist and
Confucian regions. A humanistic approach based on a textual interpretation of classical documents
(Luther, Marx, and Confucius) illumines why cultural regions have different widths of trust radius.

Keywords: Earnings forecasts, Information asymmetry, National culture, Trust, Humanistic approach

JEL Classification: F39, G14, G15, G29, N90