Social trust and firm innovation*

Sadok El Ghoul, Zhaoran (Jason) Gong, Omrane Guedhami, Fangfang Hou*, Wilson H.S. Tong

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)

Abstract

We investigate whether social trust improves corporate innovation. Based on a comprehensive firm-level panel dataset of patents filed by companies from 43 countries over 1995–2015, we find that compared with firms in low-trust countries, firms in high-trust countries have higher innovation output as measured by number of patents and patent forward citations. We also find that greater trust is associated with i) higher levels of innovation investment, ii) less volatile innovation investment over time, and iii) weaker relation between innovation investment and internally generated cash flow. Finally, we document that greater trust is associated with higher market valuation of innovation investment and more efficient conversion of innovation investment into future sales. Overall, our firm-level evidence indicates that greater social trust improves corporate innovation and its outcomes.

Original languageEnglish
Article number101745
JournalJournal of International Financial Markets, Institutions and Money
Volume84
DOIs
Publication statusPublished - Apr 2023

Keywords

  • Corporate innovation
  • Innovation input
  • Innovation output
  • Trust

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