How important is social trust during the COVID-19 crisis period? Evidence from the Fed announcements

During the COVID-19 crisis period, firms headquartered in high social trust US states perform better than their counterparts from the low social trust states. Stock returns over the crisis period are 3 to 4 percentage points higher, on average, if social trust increases by one standard deviation. The association is stronger for firms of more affected industries (COVID-19 industries). More specifically, a one standard deviation increase of social trust associates with a 6.45% increase of [Formula: see text] if firms belong to the COVID-19 industries. Next, I analyze the stock market reactions to the Fed’s announcements on March 23, 2020. The results show that firms headquartered in the high trust states benefit less from the announcements because these firms can access to other external financings cheaply. The average three-day announcement [Formula: see text] and [Formula: see text] (FF 3-factor adjusted) are higher by 2.5% and 2.6% respectively if firms headquartered in low trust states.