We hypothesize that social trust, in mitigating contracting incompleteness, may have an important effect on the activeness and effectiveness of delegated portfolio management. Using a complete sample of worldwide open-end mutual funds, we find that trust is positively associated with the activeness of funds and that trust-related active share delivers superior performance (e.g., approximately 2% per year for cross-border investments). Moreover, “trust in the market” and “trust in managers” play important yet different roles for different types of cross-border delegated portfolio management. Our results suggest that trust acts as a fundamental building block for delegated portfolio management.

We examine whether intellectual property protection facilitates the greater incorporation of firm-specific information into the stock price. Employing the staggered, country-level adoption of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), we find that after adoption, stock prices become less synchronous, consistent with more firm-specific information being impounded into the stock price. We further show that this effect is more pronounced for more innovative firms, firms in countries with stronger law enforcement, and firms with more financial analyst coverage. Finally, we document that TRIPS induces a richer information environment characterized by more management forecasts and media coverage.