From endowed trust to earned trust: Firms located in trusted regions

Trust can be obtained by firm location (endowed trust) or stakeholder-oriented activities (earned trust). We are interested in whether firms located in trusted regions are more likely to protect stakeholders' benefits as a strategy to earn trust. Based on a sample of Chinese firms, we find a significant and positive correlation between endowed trust and firms' environmental and social commitment. We suggest that endowed trust has two effects: 1) shaping local firms' legal cognition and thus decreasing misconduct; and 2) providing resources and thus mitigating financial constraints, both of which encourage firms to protect the environment and society. Moreover, the positive effect of endowed trust is weakened when corporate governance or the local legal environment is strong.