Using an international sample of IPO firms from 36 countries and a country-level index for societal trust, we find strong evidence that societal trust is negatively associated with the degree of IPO underpricing. In cross-sectional analyses, we find that the effect of societal trust in reducing...

Human beings’ decision-making processes are generally influenced by two typical cognitive biases: representativeness heuristic bias and conservatism bias. Previous studies found that the two cognitive biases cause investors to misreact to past stock earnings. This paper argues that the two...