Coping with reputational threat through public communication

Restating a firm’s financial reports often damages a firm’s reputation. We hypothesized that to repair reputationdamage after a restatement, firms increase their public communications and use more positive language in their public communications than firms without restatements. Furthermore, following prior scholarship that divided reputationinto reputationfor capability and reputationfor character, we hypothesized that prior financial and social performance influence the extent of their reputation-repairing behaviors. We found that firms with financial restatements issued more frequent and more positive press releases. We also found that restating firms with positive financial performance issue fewer press releases, and restating firms with positive social performance issue more press releases.