Trust in Annual Reports: The Role of Corporate Online Interactions With Investors

ABSTRACT This paper examines whether and how corporate online interactions with investors shape trust in annual reports. We focus on annual report comment letters, through which regulators publicly question the credibility of firms' disclosures, providing a suitable setting to observe investor trust. We find that sustained high‐quality interactions significantly mitigate the negative market reaction to comment letters, suggesting that such interactions strengthen investor trust. These results are robust to instrumental variable estimation, the Heckman two‐stage model and additional sensitivity analyses. Mechanism analyses indicate that high‐quality interactions enhance trust primarily by conveying credible signals of lower agency costs. Consistent with a signalling mechanism, high‐quality responses to negative inquiries have stronger effects on investor trust, while short‐term interactions play a limited role. The trust effect is concentrated among firms whose investors rely more on such signals. Further analysis shows that investor trust rapidly collapses when subsequent response letters reveal underlying problems and is reinforced when such problems are absent. Finally, high‐quality interactions are associated with more favourable regulatory recognition. Overall, the findings highlight the importance of high‐quality online communication in strengthening investor trust and offer implications for capital market participants.