How to trust? The importance of self‐efficacy and social trust in public responses to industrial risks

Although a great deal of research has linked both self‐efficacy and social trust to risk responses, one overlooked question concerns the association between self‐efficacy and institutional trust. The purpose of this study was to investigate the main and combined effects of trust in the self and trust in responsible agencies to affective responses and information sufficiency. Survey respondents in this study were placed into one of four categories based on their levels of self‐efficacy (high/low) and social trust (high/low), including confidence, independence, dependence and insecure groups. Based on survey data (n = 466), the accuracy of the four‐group classification was tested. Indeed, we found that our classification system correlated with responses. Both self‐efficacy and institutional trust were found to contribute to emotional risk responses, as well as risk information needs and preferences for risk information.     

The SMEs’ perspective of trust in a B2B relationship

Despite the diversity in its associated definition and related structures, the role of trust in underpinning long-term business relationships is well established. This article presents an instrument to assess trust from the perspective of Nigerian Small and Medium Enterprises (SMEs) towards their banks, an area with limited research to date. Items borrowed from various scale sets presented in existing studies are combined to assess trust by encompassing both the dimensions of credibility and benevolence. Data were collected from 221 SMEs via a self-administered questionnaire completed either by the SME owner or senior manager with responsibility for relationship with their bank, providing 199 usable records. An Exploratory Factor Analysis was used to determine the underlying data structure, with subsequent deployment of Cronbach’s α as a post-hoc assessment of the internal reliability of the retained factors. The analysis presented suggests that the SMEs’ perspective of the trust they have in their banks primarily encompasses credibility, supported by only a marginal presence of benevolence. In absolute terms, these SMEs declare a strongly positive level of credibility-based trust towards their banks despite the financial crises that have plagued the Nigerian banking industry. The originality of this work lies in the investigation of a business-to-business relationship involving SMEs and banks from the perspective of the former in an under-researched emerging economy setting.     

Choices of savings options related to trust in banks’ competence,benevolence and stability

The study investigates whether beliefs in professional investor skill in conjunction with trust in banks and other fund managers explain choices of options for long-term savings. From questionnaire data obtained for a population-based sample (n=178) and a sample of undergraduates (n=186), two index measures were constructed, one of beliefs in the skill of professional investors and another of trust in fund managers. The trust index was aggregated for the three interrelated components: competence, benevolence and stability. Regression analyses of the likelihood of savings in an actively managed fund showed an expected effect of investor-skill beliefs that was mediated by trust in the fund manager. In addition, self-reported knowledge played a larger role than trust for choices of passively managed index funds and in particular for own investment in stocks.     

Trust no more? The impact of the crisis on citizens’ trust in central banks

Citizens’ trust in economic institutions has generally declined since the onset of the crisis. In particular, Eurobarometer surveys show that trust in the European Central Bank (ECB) has fallen significantly during the crisis. This paper studies the determinants of public trust in the ECB over the lifetime of the euro. Net trust in the ECB has decreased significantly in those countries which have experienced increasing sovereign bond yields and financial market turbulence. The finding that country-specific variables affect citizens’ trust in the ECB may seem counterintuitive. However, it is consistent with strong evidence in the political science literature showing that domestic considerations play a significant role when citizens get an opportunity to express their opinion on EU matters.     

Leadership through action learning: a bottom-up approach to ‘best practice’ in ‘infection prevention and control’ in a UK NHS trust

This article reports on the outcomes of an action learning leadership intervention in a National Health Service (NHS) acute trust in partnership with a UK business school. This contribution provides an empirical example of the potential benefits of non-hierarchical leadership. Over a three-year period, 45 nurses took part in an initiative designed to reduce the number of health care associated infections (HCAI) in a large NHS acute trust. By 2010, serious reportable infections were reduced by around 300, providing an efficiency benefit in the region of £3 million and improved patient safety. The turnaround is significant, and although not exclusively attributable to this initiative, the trust is convinced that the intervention has been pivotal.     

Is international trust performance predictable over time? A note

We examine whether past return measures have any significant predictive ability for future returns of UK unit trusts with international equity objectives. We find significant positive persistence between the past return performance of the trust relative to its investment sector and future trust returns relative to its sector. This result holds at short‐run and long‐run return horizons. The persistence is stronger in trusts that perform well relative to their sector. Our findings suggest that the past return performance of the trust relative to their sector provides a useful guide to future return performance relative to their sector.     

The magic of branding: The role of ‘pledge’, ‘turn’ and ‘prestige’ in fostering consumer trust in financial services

The purpose of this article is to study the impact of brand image on consumer trust through empirical investigation in the context of the financial services sector. While trust helps to bind consumers to brands, a strong brand image works like magic in reducing consumers’ risk perception and promoting trust. This study analyses how brand image influences consumers’ trusting intention through operationalising an interdisciplinary brand-trust model. Constructs and measures were drawn from interdisciplinary brand and trust literature and tested through employing EFA, CFA and structural equation modelling. Data were collected through a quantitative survey of 300 financial services consumers. Using the analogy of a magic trick, the study unveils the key role of financial services branding in engendering consumer trust in the ‘pledge’ or ‘prestige’ parts of the trick but not in the ‘turn’. The research contributes to the convergent and mutually inclusive theories of trust and branding as well as services marketing literature. For managers and policymakers in the financial services sector the findings will help them to effectively manage brand image and foster consumers’ trusting intention.     

How far can we trust earnings numbers? What research tells us about earnings management

The article reviews the recent academic research literature on earnings management (EM) with a view to identifying research themes and results of interest to users and preparers of financial statements, accounting standard setters, and others with responsibility for ensuring that companies provide financial information to shareholders that can be relied upon. Hopefully students of accounting with an interest in exploring the EM literature will find that the article provides a useful framework. The literature on this topic is vast, and it is not possible to cover every article in detail. I provide an impressionistic survey that highlights examples of specific research themes and methods that regularly appear in the literature. Most of the examples are chosen from the literature published since 2000, although I do also highlight a few methodological contributions that appeared earlier. It is inevitable that the selection of articles reflects to some extent my personal interests and biases (intentional or otherwise). Thus, I wish to acknowledge that I owe a very substantial intellectual debt to the insights and contributions of the many uncited authors of a literature that spans over 40 years in over 20 accounting and finance journals.     

Bank debt covenants and firms’ responses to FAS 150 liability recognition: evidence from trust preferred stock

We examine the relation between accounting-based debt contracts and the economic response of firms with trust preferred stock (TPS) to mandated liability recognition under Financial Accounting Standard (FAS) 150. Our results show that firms’ financial covenants significantly affect their choice to redeem versus reclassify their outstanding TPS. Specifically, firms with bank debt covenants that would be adversely impacted by recognizing TPS as a debt liability are 26.88% more likely to redeem their TPS after FAS 150. We also find that firms are significantly more likely to redeem versus reclassify their TPS after FAS 150 if they used the original TPS proceeds to retire existing debt (id est, to enhance their balance sheets). Our findings suggest that when bank debt contracts use “floating” Generally Accepted Accounting Principles (GAAP) to construct financial covenant terms, changes in the underlying GAAP measure significantly influence firms’ economic behavior.     

Can we trust the accounting discretion of firms with political money contributions? Evidence from U.S. IPOs

Using hand-collected data from the U.S., we examine the influence of political money contributions (PMC) on IPO financial reporting. Unraveling the conflicting managerial incentives, we develop and test three distinct hypotheses whereby accounting discretion is utilized to downplay, embellish, or truthfully impart the PMC firm’s prospects. Consistent with the last two hypotheses, we document income-increasing reporting. The effects are strongest for firms sensitive to policy outcomes, and least affected by contemporaneous political events. Post-issue analysis shows that at-issue discretionary accruals systematically predict future accounting performance but are unrelated to stock returns. Survival analysis indicates a lower probability of IPO failure. Robust to a battery of checks, our results support the value-relevance of financial information and a novel use of accounting discretion as a means of signaling expected political gains.     

Customers’ dissatisfaction with banking channels and their intention to leave banks: The moderating effect of trust and trusting beliefs

Banks have the challenging task of managing customer experience across many traditional and technological channels in today’s financial services world. Recent studies and anecdotal evidence suggest that many customers are dissatisfied with their experiences across channels that are supposed to provide a seamless experience. This customer dissatisfaction potentially diminishes a financial service organization’s customer base, and requires the firm to rely on a more fickle customer mix and erodes its reputation. This paper investigates the relationship between individuals’ dissatisfaction with their primary bank channel and their intention to leave their bank in the future. The first study examines individuals’ overall trust in their bank as a potential moderator in the relationship that reduces customers’ likelihood to leave the bank even though they are dissatisfied with a particular banking channel. The second study goes one step further and examines the effect of three trusting beliefs about the bank potentially held by the customer: competence, integrity, and benevolence beliefs. Findings indicate that when customers have a high level of trust in their banks, they are less likely to leave their banks even though they are dissatisfied with their primary banking channel. Furthermore, while competence and benevolence beliefs about the bank have a similar moderating effect, integrity beliefs do not.     

Are you in with the in crowd?

At the core of your company, there is a group of people who seem to call the shots--or, rather, all the shots seem to be called for their benefit. This core group can't be found on any organization chart. It exists in people's hearts and minds. It comprises the people whose perceived interests and needs are taken into account as decisions are made throughout the organization. In most companies, talking explicitly about this group is taboo; its existence seems to contradict the vital corporate premise that we all have a common stake in the firm's success. In the best organizations, the core group can be a resource: Members represent the unique values and knowledge that distinguish their companies. When core groups display independence, creativity, and power, the rest of the company follows. Such behavior on the part of the company, in turn, creates value for shareholders, especially over the long term. But because of the core group's enormous power, members need to make themselves aware of the signals they send, both intended and unintended. For better and for worse, the core group reinforces whatever it pays attention to. A core group member who casually mentions a product might well discover three weeks later that someone has spent $1 million introducing it. If you do not know who constitutes the core group in your organization, or what the members stand for, you may find that leading will be extremely difficult--even if you are ostensibly the person in charge. If you want to move the organization in a new direction, you may need to explicitly challenge the core group. Otherwise the rest of the organization will not go along.     

Made in China

In early November 2007, Bohai Industrial Investment Fund Management Co., controlled by Bank of China Ltd., signed a deal to acquire a less than 20%equity interest in Tianjin Pipe （Group） Corporation for a consideration of approximately $200 million. This deal ranks among the biggest in mainland China.     

Portfolios in disguise? Window dressing in bond fund holdings

This paper builds on the limited body of research on window dressing by bond mutual funds. Our monthly bias-free sample allows us to undertake a more comprehensive study than is possible with the quarterly data traditionally employed in otherwise similar studies. We test window dressing in a straightforward manner using monthly undisclosed portfolios, which makes it possible to compare changes in public debt allocations around quarterly disclosures. Our results support the hypothesis that window dressing patterns vary with market conditions. We also conduct thorough tests that indicate the significant influence of fund size on window dressing. Individual analyses provide evidence that this cosmetic practice is not a widespread behaviour in the Spanish bond fund industry.     

Does religion matter in corporate decision making in America?

We examine how corporate culture influences firm behavior. Prior research suggests a link between individual religiosity and risk aversion. We find that this relationship also influences organizational behavior. Firms located in counties with higher levels of religiosity display lower degrees of risk exposure, as measured by variances in equity returns or returns on assets. They exhibit a lower investment rate and less growth, but generate a more positive market reaction, when they announce new investments. Finally, chief executive officers are more likely to join a firm with a similar religious environment as in their previous firm when they switch employers.     

Changes in bonus contracts in the post-Sarbanes–Oxley era

We examine whether the relation between earnings and bonuses changes after Sarbanes–Oxley. Theory predicts that, as the financial reporting system reduces the discretion allowed managers, firms will put more weight on earnings in compensation contracts to encourage effort. However, the increased risk imposed by Sarbanes–Oxley on executives may cause firms to temper this contracting outcome. We examine and find support for the joint hypothesis that the implementation of Sarbanes–Oxley and related reforms led to a decrease in earnings management and that firms responded by placing more weight on earnings in bonus contracts. We find no evidence that firms changed compensation contracts to compensate executives for assuming more risk.