Does ‘COVID-washing’ pay off? The economic consequences of impression management strategies in time of crisis
We use the novel 2019 coronavirus (COVID-19) pandemic as a research context to study companies’ disclosure behaviours in time of crisis and investigate the economic consequences of firms’ impression management strategies based on tone manipulation, which we name ‘COVID-washing’. By comparing the positive tone of COVID-related disclosures and non-COVID ones included in Fortune Global 500 firms’ annual reports issued in 2019–2021, we also study the channels that can increase disclosure credibility and through which COVID-washing may be associated with firm stock returns; that is, firm environmental, social, and governance (ESG) reputation (proxied by past ESG performance) and firm financial visibility (proxied by the number of analysts following). Our results indicate that COVID-washing does not pay off, as it is associated with lower firm stock performance, especially during the crisis peak. However, the negative association between COVID-washing and stock performance is moderated for credible signallers; that is, firms with higher ESG performance and a higher number of analysts following. Overall, our study contributes to the accounting literature on impression management with a specific focus on times of crisis by showing that using an overly optimistic tone for conveying crisis-related content in corporate disclosures is not an effective communication strategy to positively influence investors’ perceptions unless they are reassured by a firm’s strong ESG reputation and financial visibility.