Repairing trust: corporate communication strategies after financial restatements

Purpose The purpose of this paper is to examine how firms utilize corporate communications to restore trust with stakeholders. It investigates the volume and tone of press releases issued by firms before and after financial restatements and examines how prior social performance modifies this relationship. The study also explores whether firms’ communication practices influence investors. Finally, it explores whether firms effectively utilize communication as a tool for trust restoration by examining vagueness and regularity in communications. Design/methodology/approach A difference-in-difference formulation with Tobit, Poisson, and Heckman estimators was used to test a full sample of 464 firms that including restating and non-restating firms. To test restated firms only (N = 116), Tobit, Poisson and Heckman estimators were used. Also, multiple imputation was used to handle missing data. Findings We find that restated firms issue a greater volume of communications and use a more positive tone following financial restatement. Among restating firms, those with positive social performance before restatement issue a greater volume of communications with a more positive tone. Also, we find that volume of communications marginally, positively influences firm Tobin’s Q in the months after a restatement. Finally, our results find that restated firms use less vague expressions in communications and the communications are more regular than non-restated firms. Originality/value This study contributes to the literature by providing comprehensive insights into how firms leverage corporate communications to rebuild trust with stakeholders following financial restatements. This nuanced exploration of communication strategies in the context of trust restoration adds significant value to the existing literature on post-transgression communications and financial restatements.