Work

COVID‐19, Board of Directors and Pessimism in Annual Reports: An Intention to Mitigate Litigation Risk

Year: 2024

Type: article

Abstract: ABSTRACT This study examines the impact of corporate COVID‐19 disclosure on the negative tone (pessimism) in annual reports. We also investigate how board size and board independence influence pessimism in annual reports. Using a U.K. sample from 2020, we employ various techniques to explore the COVID‐19 disclosure‐pessimism nexus. Our findings, supported by Tobit regression and a two‐stage least squares (2SLS) model, reveal a positive association between COVID‐19 disclosure and pessimism in annual reports. We observe that managers tend to disclose COVID‐19 information pessimistically as a risk mitigation strategy, aiming to prevent future earning shocks and potential litigation costs. Interestingly, our results also indicate that large boards and independent directors can bolster governance power, safeguarding firms against potential litigation costs by increasing pessimism in annual reports, both during and beyond the COVID‐19 pandemic.

Source: International Journal of Finance & Economics

DOI: 10.1002/ijfe.3063

Authors: Khaldoon Albitar, Mahmoud Elmarzouky, ATM Enayet Karim, Ali Meftah Gerged

Institutions: University of Glasgow, University of St Andrews, Queen's University Belfast, Misurata University, University of Sheffield

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,240