ABSTRACT Financial distress can adversely affect a firm's long‐term sustainability and have devastating consequences for stakeholders. Given the increased use of social media platforms as corporate disclosure channels, this research examines whether financially distressed firms tend to alter the tone/sentiment of their social media disclosures and whether governance mechanisms can help mitigate such potential opportunistic behaviour. Using a sample of tweets and posts by 106 Pakistani firms from 2017 to 2022, this research finds that distressed firms are more likely to utilise a less positive tone in their social media disclosures. Further, we find that under good governance, this effect is strengthened, while under weak governance structures, financially distressed firms are more inclined to utilise impression management. We contribute to the corporate social responsibility literature by providing evidence that, under the right governance conditions, social media platforms can be conducive to more truthful disclosures and help firms engage with, communicate to, and build trust among different stakeholders.
Hasan et al. (Thu,) studied this question.