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

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  • Khaldoon Albitar
  • Mahmoud Elmarzouky
  • ATM Enayet Karim
  • Ali Meftah Gerged

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.

Suggested Citation

  • Khaldoon Albitar & Mahmoud Elmarzouky & ATM Enayet Karim & Ali Meftah Gerged, 2025. "COVID‐19, Board of Directors and Pessimism in Annual Reports: An Intention to Mitigate Litigation Risk," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 3187-3200, July.
    • Handle: RePEc:wly:ijfiec:v:30:y:2025:i:3:p:3187-3200
    DOI: 10.1002/ijfe.3063
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