Societal Trust and Firm-level Trust: Substitute or Complement? An International Evidence

Using an international sample of 30,060 observations for firms from 32 countries from the period of 2004-2018 and a country-level index for societal trust, we document that societal trust is negatively associated with corporate social responsibility (CSR), which is a proxy for firm-level corporate trust-building investment. Further analyses show that firms in low-trust countries tend to invest more in CSR when they are owned by large foreign shareholders originating from low-trust countries. The negative impact of societal trust on CSR is pronounced for firms located in less stable countries. Overall, our results suggest that societal trust and firm-level trust act as substitutes in terms of their impact on CSR. From the perspective of risk management, the results confirm our argument that the marginal benefits of CSR-as-insurance are more crucial for firms located in low-trust countries.