Trust and corporate R&D investment: Cross-country evidence

This paper examines the relation between societal trust and corporate innovation in the wider world. Using data on firms located in 72 countries and regions from 1992 to 2016, we find strong evidence that firms in countries with a higher level of societal trust have higher research and development (R&D) investment input. This is because that higher trust could mitigate information asymmetries, lower monitoring and transaction costs, and ease corporate financial constraints to motivate innovation. Moreover, we find the impact of societal trust on R&D investment is more pronounced in the countries with poor intellectual property rights (IPRs) protection.