Social trust and the choices to provide audited financial statements by private firms in emerging markets

Abstract

Our study explores the association between social trust and private firms' choices to provide audited financial statements. By exploring an international sample from emerging markets, we find that private firms in countries with higher social trust are less likely to provide audited financial statements. This finding arises because social trust helps address contracting imperfections, substituting for audited financial statements in mitigating agency problems. Our study suggests that social trust renders private firms rely less on audited financial statements to facilitate contracting. We contribute to the literature on private firms’ financial reporting choices and the role of social trust in shaping economic decisions.