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Past Issue • Apr-Jun 2014

Trust, Reputation and Disclosure in Economic Exchange

In this article, Professor Radhika Lunawat analyses how disclosure and financial reporting can serve to repair reputations and rebuild investor confidence in the aftermath of the global economic recession. Economic institutions have an important role to play in facilitating the restoration of managerial reputations and trust, which are essential for economic development, she argues

Economic downturns bring in their wake a great deal of suffering and leave a trail of shaken confidence and broken trust in the economic system. The financial meltdown of 2007-09 is a case in point, and Sapienza and Zingales (2009) describe the concomitant loss of trust among economic agents as follows:

Without trust, cooperation breaks down, financing breaks down and investment stops. One can bomb a country back to the Stone Age, destroy much of its human capital, and eliminate its political institution. But, if trust persists, the country may be able to right itself in just a few years, as in Germany and Japan after World War II. Conversely, you can endow a country with all the greatest natural resources but if there is no trust, there is no progress.

ABOUT THE AUTHORS

  • Radhika-Lunawat

    Radhika Lunawat

    Radhika Lunawat is an Assistant Professor at The Paul Merage School of Business at the University of California, Irvine, California.
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