Abstract
This study, using market prices, explores whether financially distressed firms voluntarily implement a higher level of integrated reporting (IR) as an impression management (IM) tool to obfuscate their financial reports (greenwashing). IR is measured as the extent to which integrated reports conform to the guideline principles provided by the International Integrated Reporting Centre (IIRC). Using Australian data for 2015-2017, we show that the relationship between IR conformity (IRC) and firm values for financially distressed firms is nonlinear and concave – positive at lower levels of IRC but becomes negative at higher levels. We also show that the relationship between IRC and bid-ask spread, the liquidity channel, for financially distressed firms is non-linear and convex. Additional tests on the relationship between IRC and earnings management proxies show that higher IR is associated with higher earnings management (higher obfuscation), thus corroborating our main findings.