Social trust, audit quality and institutional investor herd behaviour

Abstract

Trust is essential for a well-functioning market economy and is influenced by social institutions and technical advancement, not just cultural traditions. This paper examines how social trust affects institutional investor herd behaviour. Based on data from 2011 to 2021, this paper adopts a fixed effect model to explore the effects and underlying mechanisms. The findings indicate that increasing social trust can inhibit institutional investor herd behaviour, especially investor sell-side herd behaviour. The impact is achieved by enhancing audit quality, especially in the international Big Four. The findings advise the government on reducing institutional investors' herd behaviour from a macro perspective.