Can narrative disclosure in annual reports preserve corporate reputation: evidence from letters to shareholders

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Purpose The purpose of this paper is to examine the reputational maintenance effect of the letters to shareholders in the Chinese capital market. Design/methodology/approach Using a sample of 859 letters to shareholders hand-collected from annual reports, this study examines the role of letters to shareholders on corporate reputation using data from Chinese A-share listed firms in the Shanghai and Shenzhen Stock Exchanges and covering the period 2007–2022. Panel data analysis is applied. Findings Drawing on impression management theory, we find that preserving corporate reputation is an important motivation to issue letters to shareholders. The chairman/CEO/president may manage the tone of the letter to shareholders to preserve corporate reputation. Further analysis shows that the effect is weakened with more negative news about the firm, more negative news about the chairman, and the presence of financial fraud news about the firm. Originality/value To the best of our knowledge, this is the first study to show the impact of letters to shareholders on corporate reputation in China.

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