Fake News and Investment as a Signal: Evidence from Corporate Clarifications in China
Fake News and Investment as a Signal: Evidence from Corporate Clarifications in China

Summary/Abstract: In an era of rapid information diffusion, fake news poses a growing threat to corporate credibility and stakeholder trust. Although firms frequently issue clarification announcements to refute misinformation, such verbal denials are often viewed as cheap talk and may fail to restore confidence. This study examines whether firms use real investment decisions as credible signals to counteract the adverse effects of fake news. Using a sample of Chinese A-share listed firms from 2012 to 2024, we identify exposure to fake news through firm-issued clarification announcements and analyse subsequent investment behaviour. We find that firms significantly increased both R&D and CAPEX following clarifications. The response was systematically differentiated by rumour valence: negative fake news triggered higher R&D spending, signalling long-term technological resilience; positive fake news led to greater CAPEX, demonstrating operational capacity to meet inflated expectations. These effects were stronger among firms with weaker governance or poorer disclosure quality, indicating that costly investment commitments substitute for low institutional credibility when verbal assurances are insufficient. The findings contribute to the literature by showing that real investment decisions serve as strategic tools for managing external belief uncertainty, extending signalling theory beyond traditional financial contexts.

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