Keywords

1 Introduction

In times of crisis, Annual reports take on much greater significance since they serve as managers’ primary means of informing stakeholders about financial outcomes. The presentation of macroeconomic context and risk management disclosure, which may have an impact on forward-looking information, are the main points of emphasis. These instructions result in a shift in the annual reports’ tone, which is anticipated to be more depressing. This shows that the accounting estimates published are greatly influenced by external variables rather than managers’ ability [40].

Recent research on COVID-19 has mainly concentrated on three key topics in the financial context. Firstly, Hassan et al. [28] explored the future of financial reporting. Secondly, Nabity-Grover et al. [39] and Donthu and Gustafsson [17] looked into how COVID-19 was perceived theoretically in the financial markets, insurance and financial services institutions, as well as government entities and public sectors. Thirdly, Broadstock et al. [13] and Erdem [24] studied the response of finance to market conditions, such as stock returns. Additionally, Khatib et al. [33] conducted a study comparing financial performance before and after the onset of the Corona pandemic, while Broadstock et al. [13] examined the impact of ESG disclosure on financial performance during the Corona crisis.

We motivated to focus on the Egyptian setting in the current situation for several of different reasons. One reason is Egypt’s a growing economy that as an emerging economy with a lot of avenues for foreign investment [22]. The various financial reporting environments in Egypt might have an impact on how initial disclosure standards are applied. Gray’s [26] model predicts that accounting metrics and disclosures in Egypt would typically be more cautious and opaque. Egypt needs to increase funding, foster confidence, and take stakeholders’ interests into account. The COVID-19 crisis and other changes in the Egyptian economy have likely had an impact on accounting disclosure practices. Egypt one of the nations impacted by the COVID-19 epidemic. Egypt thus offers a chance for new empirical research to acquire understanding of the COVID-19 crisis’ effects on the level of transparency.

Stakeholders are eager to get more information on how the COVID-19 epidemic will affect company operations. Also, annual reports’ narrative sections could be used by companies to impart this vital information to shareholders. Incorporating additional COVID-19 narrative content could help minimize the information asymmetry that exists between managers and shareholders. This reduction of information asymmetry could have positive financial consequences, such as a rise in institutional shareholding, firm value, and a decrease in the cost of equity capital, stock price volatility, and stock crash risk. It’s worth noting that although developed nations possess a robust framework for COVID-19 reporting [25], developing countries do not. Therefore, it’s important that companies operating in such countries include COVID-19 narrative content in their reports.

Our research in the field of corporate narrative reporting makes two important contributions. Firstly, we expand the existing body of knowledge on COVID-19 narrative reporting by conducting a manual content analysis to examine how Egyptian companies are disclosing information about the pandemic. Our study is unique in that it is the only one to investigate the factors that influence corporate COVID-19 narrative reporting in Egypt. Secondly, we offer fresh insights into how corporate governance and characteristics of firms affect COVID-19 narrative reporting in the Egyptian context.

The remainder of the article is structured as follows: The research hypotheses are developed, and the literature is reviewed in Sect. 2, discusses the research method in Sect. 3. The empirical findings and robustness test are presented in Sect. 4. Section 5 concludes.

2 Relevant Literature and Hypotheses Development

2.1 Firm Characteristics and Corporate COVID-19 Narrative Reporting

Firm size: In agreement with agency theory, it would be expected that larger businesses will offer more information to satisfy the requirements of a variety of users. This can lessen information asymmetry and agency costs [45]. Larger organizations typically have the capital needed to pay the costs associated with producing more disclosures. The size of a firm and the amount of information it releases are significantly correlated, according to earlier research on corporate transparency [29, 36]. According to widespread observation and extant studies [8, 44], larger businesses often release more information. Beattie et al. [11] also discovered a positive correlation between the size of British companies and their level of reporting. According to Hope [31], there is a high demand for accounting information globally, and improving its quality is essential. Jensen and Meckling [32] propose that larger organizations have increased agency costs as they need substantial external funding to support their investments. In keeping with Watts and Zimmerman [46], larger businesses incur higher political expenses. Because of this, big businesses frequently offer more information to enhance stockholders confidence and cut costs. Based on the above theoretical analysis, the study assumes that:

H1. COVID-19 narrative reporting is likely to be influenced by firm size.

Profitability: Empirical researches examining voluntary reporting often uses profitability ratios as a common measure [14, 41]. These studies reveal that voluntary disclosure has a positive result for corporate performance. Meek et al. [37] found that companies that are operating well tend to share more information on a voluntary basis. In general, these studies presume that firms with performance exceeding a particular threshold will make disclosures while those with performance below the threshold will not, owing to the expenses associated with disclosure. As reported by Wang et al. [44], when a company’s earnings are increasing, managers are motivated to provide investors more information as a sign of quality. According to the above theoretical analysis, the study assumes that:

H2. COVID-19 narrative reporting is likely to be influenced by firm profitability.

Industry type: Although earlier research examined the connection between narrative reporting and industry type, its results were not conclusive. Others have identified a correlation between industry type and corporate reporting. In studies focusing on risk reporting, it has been shown that the way companies report on risks varies across different industry sectors [15, 36]. In response to the signaling theory, businesses operating in the same sector are likely to adopt comparable degrees of openness, and any departure from the norm may be interpreted as an effort to obfuscate bad news [6]. It is expected that various business types will influence risk reporting in interim reports, as different industries face specific challenges and constraints that impact their risk profiles. The complexity of value creation in each industry is likely to result in varying types and levels of risks [16]. According to the above theoretical analysis, the study assumes that:

H3. COVID-19 narrative reporting is likely to be influenced by Industry type.

2.2 Corporate Governance and Corporate COVID-19 Narrative Reporting

Board size: The board of members is essential to the governance structure of companies that are publicly listed. Several theories have been proposed to explain how the number of directors on a board influences the disclosure of corporate information [27, 38]. Along with agency and stakeholder theories, bigger boards may result in increased agency expenses and related difficulties. This is because larger boards can better reflect the desires of many stakeholders and competing interests throughout the decision-making process. Additionally, it may increase the cost of collaboration and communication, negatively affecting disclosure [3, 4]. Furthermore, resource dependency and human capital theories contend that productivity and efficiency are favorably correlated with levels of high human capital. As a result, a large board size gives more resources to do duties efficiently. Nevertheless, as more directors may contribute more knowledge, they may also make decisions that can strengthen the decision-making process and improve the standard of disclosure [19]. According to the above theoretical analysis, the study assumes that:

H4. COVID-19 narrative reporting is likely to be influenced by board size.

Audit committee size (AC): The audit committee directors are responsible for ensuring that businesses follow proper financial reporting standards, according to Al Lawati et al. [2]. Ho and Wang [30] revealed that these directors’ expertise had a positive influence on voluntary reporting. According to Bedard and Johnstone [12], larger audit committees with the necessary abilities and diverse viewpoints are better capable of successfully monitoring, resulting in increasing levels of disclosure. likewise, Raimo et al. [42] discovered that a larger audit committee size improves disclosure quality. Nonetheless, large committees may face challenges such as the free-rider problem and task dispersion, which can ultimately undermine disclosure level of quality [35, 36]. Based on the aforementioned theoretical analysis, our study assumes that:

H5. COVID-19 narrative reporting is likely to be influenced by Audit committee size.

Board independence: In line with theories of resource dependence and human capital, having independent directors on a board may provide a corporation access to important resources like knowledge, reputation, and networks, which can lead to better disclosure practises. Human Capital theory specifically posits that education, experience, and skills can enhance the quality of disclosures [10, 43]. According to both theories, independent directors improve the quality of disclosure [21]. In contrast, the findings of earlier empirical investigations on the relationship between board independence and transparency have been inconsistent. Some research have discovered a positive correlation, while others have shown a negative connection, and some research has not revealed a connection between the two factors [7, 18, 20]. Based on the above theoretical analysis, the study assumes that:

H6. COVID-19 narrative reporting is likely to be influenced by board independence.

3 Research Method

3.1 Sample and Data Collection

Our empirical study focuses on all companies that were listed on the Egyptian Stock Exchange (EGX) during the COVID-19 pandemic from 2020 to 2021. We specifically chose 2020 since it was the year when the pandemic was at its peak. Initially, we had 205 companies in our sample, but after removing firms with incomplete data, we ended up with a final sample of 200 firm observations. To gather data, we obtained annual reports from Mubasher website, and then manually analyzed the content to identify any information related to COVID-19. In addition, we collected governance data from CG reports and annual reports. To test our study hypotheses, we employ the regression models shown below. Table 1 shows the variables’ measurements:

$$\begin{aligned} {\text{COVID}}19\_{\text{DISC}} & = \beta 0 + \beta 1\left( {{\text{FSIZE}}} \right) + \beta 2\left( {{\text{ROA}}} \right) + \beta 3\left( {{\text{IND}}} \right) \\ & + \beta 4\left( {{\text{LEV}}} \right) + \beta 5\left( {{\text{CASH}}} \right) + \beta 6\left( {{\text{BIG}}4} \right) + \beta 7\left( {{\text{LOSS}}} \right) \\ & + \beta 8\left( {{\text{SOE}}} \right) + {\text{Industry}}\,{\text{Dummies}} + {\text{Year}}\,{\text{Dummies}} + \varepsilon \,i \\ \end{aligned}$$
(1)
$$\begin{aligned} {\text{COVID}}19\_{\text{DISC}} & = \beta 0 + \beta 1\left( {{\text{BSIZE}}} \right) + \beta 2\left( {{\text{ACSIZE}}} \right) + \beta 3\left( {{\text{BIND}}} \right) \\ & + \beta 4\left( {{\text{LEV}}} \right) + \beta 5\left( {{\text{CASH}}} \right) + \beta 6\left( {{\text{BIG}}4} \right) + \beta 7\left( {{\text{LOSS}}} \right) \\ & + \beta 8\left( {{\text{SOE}}} \right) + {\text{Industry}}\,{\text{Dummies}} + {\text{Year}}\,{\text{Dummies}} + \varepsilon \,i \\ \end{aligned}$$
(2)
Table 1 Variables measurement
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4 Empirical Results and Discussion

4.1 Descriptive Statistics

Table 2 presents various statistics related to COVID-19 disclosure, firm size, return on assets, industry type, board size, audit committee size, and board independence. The COVID-19 disclosure has an average value of 0.515, ranging from 0 to 1. The average firm size is 8.667, with a minimum of 5.060 and a maximum of 12.83. The average return on assets is 0.06, with a minimum of − 0.492 and a maximum of 0.879. The average industry type is 0.66, ranging from 0 to 1. The average board size is 9.685, with a minimum of 4 members and a maximum of 15 members. The audit committee size has an average of 3.32 members, ranging from 0 to 7 members. The average board independence is 1.18, ranging from 0 to 4.

Table 2 Descriptive statistics
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4.2 Correlation Analysis

The correlation matrix presented in Table 3 indicates that COVID-19 disclosure is associated with certain firm characteristics such as firm size and return on assets, as well as various corporate governance aspects such as board size, audit committee size, and board independence. However, there is no apparent correlation between COVID-19 disclosure and industry type. Furthermore, our independent and control variables do not exhibit any significant correlation, implying that multicollinearity is not a concern in our study.

Table 3 Correlation matrix
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4.3 Regression Analyses

We use OLS regression analysis to examine the determinants of corporate COVID-19 narrative reporting. Table 4 (model 1) shows that firm size and profitability are significantly associated with corporate COVID-19 narrative reporting. The coefficient on firm size is positive and statistically significant at the 1% level. This results is consistent with the previous disclosure literature [5, 29]. We therefore accept H1. These findings are also consistent with agency and signalling theories, which show that larger firms tend to reveal more COVID-19 information in order to minimise the cost of agency and minimise information asymmetries. Also, the coefficient on profitability is positive and statistically significant at the 1% level. This results is consistent with the previous disclosure literature [23, 44]. So, We accept H2. The finding is also in line with agency theory expects that managers of companies with high profitability would tend to provide more COVID-19 information in annual reports, in order to justify their present performance to the shareholders. On the other hand, the results show that the association between industry type and corporate COVID-19 narrative reporting is insignificant. Therefore, we reject H3.

Table 4 (model 2) shows that board size, audit committee size and board independence are significantly associated with corporate COVID-19 narrative reporting. The coefficient on board size is positive and statistically significant at the 1% level. This implies that higher board size lead to higher COVID-19 narrative reporting. This findings is consistent with prior studies that consider various voluntary disclosure [3, 27, 34]. Contrary to previous studies [1, 38] the analysis shows that board size has no impact on disclosure. We, therefore, accept H4. Similarly, the coefficient on audit committee size is positive and statistically significant at the 1% level. This implies that higher audit committee size lead to higher COVID-19 narrative reporting. The study demonstrates that contrary to previous studies [2, 9], AC size has no effect on COVID-19 disclosure. Therefore, H5 is accepted. Also, the coefficient on board independence is positive and statistically significant at the 1% level. This implies that higher board independence lead to higher COVID-19 narrative reporting. This result is consistent with the previous disclosure literature [21]. We, therefore, accept H6 (Table 4).

Table 4 Regression analysis: determinants of COVID-19 narrative reporting
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4.4 Robustness Test

Furthermore, we conducted a robustness check to explore whether the factors influencing COVID-19 narrative reporting in an emerging market are consistent with our previous findings. To achieve this, we utilized alternative measures for COVID-19 narrative reporting by the number of COVID-19 related words disclosed in the company’s annual report narratives. Additionally, as a robustness check, we used a two-stage least squares (2SLS) regression model to address possible endogeneity concerns caused by the reverse causality link between company characteristics, corporate governance, and COVID-19 narrative reporting. Table 5 presents the outcomes of the 2SLS regression method, which are in line with our primary conclusions. This implies that our model is dependable and unaffected by endogeneity concerns.

Table 5 Robustness test
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5 Conclusion

The focus of this article is to investigate the factors that contribute to COVID-19 narrative reporting by companies in Egypt. Our analysis shows that firm size and profitability significantly and positively impact corporate COVID-19 narrative reporting. In contrast, we did not find an impact of industry type on corporate COVID-19 narrative reporting. We also find that board size, audit committee size and board independence significantly and positively impact corporate COVID-19 narrative reporting. Firms with more governance power lead to more information disclosed on COVID-19. Our results significantly impact academics, management, shareholders, governments, and regulators. The results of this study, for instance, may be used to create legislation for a suitable corporate governance framework, showing that greater governance enhances disclosure practices in times of crisis. It is important for policymakers to be conscious of the attributes of firms that impact their COVID-19 reporting. The government could benefit from providing comprehensive guidelines for COVID-19 disclosure practices. Corporate managers should strengthen their governance procedures to enhance the disclosure of COVID-19 in annual reports. This will enable shareholders to gain a better understanding of how companies are managing the current economic situation and encourage more narrative COVID-19 reporting. We limit our analysis the determinants of corporate COVID-19 narrative reporting. Our research presents a future research opportunity for scholars to explore various facets of COVID-19 disclosure, including examining the consequences of corporate COVID-19 narrative reporting. This entails investigating how corporate COVID-19 narrative reporting affects stock price volatility, cost of capital, firm value, and stock price crash risk.