If a Company Says It’s Ethical, Investors Might Want to Be Skeptical – WSJ

Companies using trust words were also about 15% more likely to receive a comment letter from the Securities and Exchange Commission asking them to clarify information on their annual report than companies that didn’t use trust words. The SEC often uses comment letters to communicate its concerns with the annual report.

“Companies likely use trust words to project a positive image and better manage information within the annual report, but it seems that no one is really fooled,” says Gopal Krishnan, a professor of accounting at Bentley University in Waltham, Mass., and one of the study’s co-authors.

The authors used a computer program to search for the 21 words in the annual filings of 3,595 companies between 1995 and 2018. In their sample, 1,659 firms used trust words and 1,936 didn’t.

Source: If a Company Says It’s Ethical, Investors Might Want to Be Skeptical – WSJ