Can bad news be good? On the positive and negative effects of including moderately negative information in CSR disclosures

Abstract

Most companies are eager to present themselves as “green,” “sustainable” or “socially responsible” by making overly positive and optimistic corporate social responsibility (CSR) disclosures. Failures, setbacks and mistakes, however, are usually withheld. This study critically examines the advantageous and disadvantageous effects of voluntarily disclosing moderately negative information. We argue that two countervailing effects exist that affect corporate trustworthiness. First, attribution theory predicts that voluntarily reporting negative information is likely to be attributed to the honesty of the company. However, second, readers may perceive the voluntary disclosure of negative information as implausible, which adversely affect trustworthiness. The study additionally investigates the effects of moderately negative information and trustworthiness on CSR perception. An experiment was conducted to test these relationships, and the results provide support for the positive and negative effects on trustworthiness. Moreover, no negative effect on CSR perception was detected.