Does an equity analyst's trust in others impact the processing of information from outside sources? We investigate this question using a measure of trust based on surveys conducted in analysts' countries of origin. We find that more trusting analysts not only react faster to management guidance and earnings announcements, they also weight information from management and other analysts more heavily than less trusting analysts. This results in a nonlinear inverted-U relationship with forecast accuracy. Analysts with low trust place too little weight on outside information, while analysts with high trust place too much weight and are, thus, both less accurate than “medium” trust analysts. This effect on accuracy is weaker for those with more on-the-job experience, indicating that analysts rely less on their cultural trust beliefs as they learn more about the quality of information sources. JEL Classifications: M41; G17. Data Availability: Data are available from the sources cited in the text.

We examine the effects of diversity in the board of directors on corporate policies and risk. Using a multidimensional measure, we find that greater board diversity leads to lower volatility and better performance. The lower risk levels are largely due to diverse boards adopting more persistent and less risky financial policies. However, consistent with diversity fostering more efficient (real) risk-taking, firms with greater board diversity also invest persistently more in research and development (R&D) and have more efficient innovation processes. Instrumental variable tests that exploit exogenous variation in firm access to the supply of diverse nonlocal directors indicate that these relations are causal.

Firm values can substantially change between the time deal terms are set and the actual deal closing, risking renegotiation, or termination. We find increases in market volatility decrease subsequent deal activity, but only for public targets subject to an interim period. The effect is strongest when volatility is highest, for deals taking longer to close, and for larger targets. Merging parties attempt to shorten the interim window as risk increases. Firm- and industry-level uncertainty measures reveal similar findings, ruling out an unobserved macro variable. We conclude interim uncertainty contributes to understanding the timing and intensity of public firms’ merger activity.

We examine the impact of task-oriented speech (TOS) on market participants’ ability to process new information, where TOS quantifies a more direct method of communication. Focusing on a widely publicized information event, conference calls, we show that greater TOS is associated with lower ex-post total and idiosyncratic volatility and abnormal trading volume, even after controlling for linguistic characteristics, hard versus soft information, industry effects, and ex-ante implied volatility. TOS also impacts financial analysts: forecast error, forecast dispersion and disagreement are lower during the subsequent quarter. Overall, greater use of TOS increases the ability of financial markets to efficiently evaluate new information.

We examine whether bilateral investment treaties (BITs), an external governance mechanism, stimulate cross-border mergers by protecting the property rights of foreign acquirers. Exploiting the staggered adoption and bilateral nature of the treaties, we find that BITs have a large positive effect on cross-border mergers. The probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. The increase is driven by deals flowing from developed economies to developing economies and is concentrated in target countries with medium levels of political risk. The results suggest BITs are effective in expanding the global market for corporate control, particularly in the developing world.

The literature on managerial style posits a linear relation between a chief executive officer's (CEOs) past experiences and firm risk. We show that there is a nonmonotonic relation between the intensity of CEOs’ early‐life exposure to fatal disasters and corporate risk‐taking. CEOs who experience fatal disasters without extremely negative consequences lead firms that behave more aggressively, whereas CEOs who witness the extreme downside of disasters behave more conservatively. These patterns manifest across various corporate policies including leverage, cash holdings, and acquisition activity. Ultimately, the link between CEOs’ disaster experience and corporate policies has real economic consequences on firm riskiness and cost of capital.