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

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 dis...

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Published in:International journal of finance and economics 2024-11
Main Authors: Albitar, Khaldoon, Elmarzouky, Mahmoud, Karim, ATM Enayet, Gerged, Ali Meftah
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creator Albitar, Khaldoon
Elmarzouky, Mahmoud
Karim, ATM Enayet
Gerged, Ali Meftah
description 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.
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title COVID‐19, Board of Directors and Pessimism in Annual Reports: An Intention to Mitigate Litigation Risk
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