TY  - UNPD
A1  - D'Acunto, Francesco
A1  - Xie, Jin
A1  - Yao, Jiaquan
T1  - Trust and contracts: empirical evidence
T2  - LawFin working paper ; No. 32
N2  - Trust between parties should drive contract design: if parties were suspicious about each others’ reaction to unplanned events, they might agree to pay higher costs of negotiation ex ante to complete contracts. Using a unique sample of U.S. consulting contracts and a negative shock to trust between shareholders/managers (principals) and consultants (agents) staggered across space and over time, we find that lower trust increases contract completeness. Not only the complexity but also the verifiable states of the world covered by contracts increase after trust drops. The results hold for several novel text-analysis-based measures of contract completeness and do not arise in falsification tests. At the clause level, we find that non-compete agreements, confidentiality, indemnification, and termination rules are the most likely clauses added to contracts after a negative shock to trust and these additions are not driven by new boilerplate contract templates. These clauses are those whose presence should be sensitive to the mutual trust between principals and agents.
T3  - LawFin Working Paper - 32 
KW  - Empirical Contract Theory
KW  - Incomplete Contracts
KW  - Cultural Economics
KW  - Beliefs and Choice
KW  - Personnel Economics
KW  - Organizational Economics
KW  - FinTech and Textual Analysis
KW  - Consulting
KW  - Management
KW  - Non-Compete Agreements
KW  - Big Five
KW  - Fraud
KW  - Accounting
KW  - Disclosure
Y1  - 2022
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/65173
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-651738
UR  - https://ssrn.com/abstract=4140744
N1  - The paper benefited significantly from a fellow visit of Francesco D’Acunto at the Center for Advanced Studies on the Foundations of Law and Finance funded by the German Research Foundation (Deutsche Forschungsgemeinschaft, DFG)-project FOR 2774.
IS  - June 2022
PB  - Center for Advanced Studies on the Foundations of Law and Finance, House of Finance, Goethe University
CY  - Frankfurt am Main
ER  -