Fake news: Why companies should worry about it

Imagine scrolling through social media and coming across a sensational yet unsettling post about a company you trust. You might question its credibility – perhaps it’s fake news? – but since someone in your network shared it, doubt creeps in. Would you believe it? Would it change how you perceive the company? The answer isn’t straightforward. Even if you suspect the news is false, it may still influence your perception and relationship with the company, according to our study.

When approching fake news targeting businesses, we asked ourselves: Should companies be concerned? And if so, when? Most academic research on fake news has focused on broad societal issues, such as the infopandemic during the COVID-19 or its impact on political elections. We turn our attention to businesses to offer timely insights into how they can counteract fake news, which has the potential to disrupt corporate reputations significantly.

Fake news: what to do with companies?

Today, information spreads faster than ever, but not everything we read is true. Fake news – false or misleading information deliberately spread – poses a significant issue for 45% of European citizens (Eurobarometer, 2024). This concern is unsurprising, given that about 30% of Europeans frequently encounter fake news (Eurobarometer, 2022). Globally, 60% of people worry about distinguishing real fact from false contents online, particularly on platforms like TikTok or X. Advancements in artificial intelligence have made fake news more sophisticated , with AI-generated texts resembling credible sources and images nearly indistinguishable from reality.

While politics, health, and war dominate fake news content in 2024, businesses are not immune. Numerous cases highlight the disruptive consequences of fake news on companies across various sectors – from pharmaceuticals to consumer goods, technology to banking.

Variety is also not lacking and fake news comes in many forms. Our preliminary search found stories ranging from accusations of human trafficking and human rights violations to allegations of dangerous products and environmental misconduct. Despite the diversity of content, the effects on businesses are strikingly similar: drops in stock value, consumer distrust, and significant reputational damage.

Fake news and corporate reputation: Real consequences

Our research examines how fake news affects corporate reputation. We conducted three studies involving 799 UK participants, measuring company reputation before and after exposure to fake news. The results were clear: fake news consistently worsened corporate reputation, with an average 16% increase in negative perceptions. However, the reputation drop did not happen in the same way far all the companies.

Fake news is particularly harmful to companies with strong positive reputations, whereas its effect is less pronounced for companies already viewed negatively. When a well-regarded company is targeted by fake news, it creates cognitive dissonance—forcing individuals to reconcile their positive perception with the distorted information. Conversely, when fake news targets a company with an already poor reputation, it does little additional harm since the negative perception is already established.

These effects were independent of the content of the fake news. Whether the false information involved ethical violations, technical failures, or corporate negligence, the impact on reputation was significant. Additionally, fact-checking alerts did not mitigate reputational damage. Whether or not participants were warned that the content was false, the fake news worstened the reputation.

The mechanism of altering the perceived reputation

Understanding how reputation damage occurs was another key focus of our research. The impact of fake news on corporate reputation is not as direct as one might assume. People often believe that others are more susceptible to fake news than they are – a well-documented phenomenon in media studies known as the “third-person effect”.

We documented a similar effect for fake news. When individuals encounter fake news about a company, they assume that others are more easily swindled. As a result, they believe that other’s perception of the company reputationhas changed, even if their own opinion remains mostly unchanged. Unfortunately, this is not good news for companies. Perception of what others believe can be just as damaging as direct belief in the fake news.

Over time, people tend to align their opinions with what they think others believe. Even if the immediate impact on reputation is minor, the assumption that others were influenced by fake news can gradually shift individual opinion. Worse still, these changing perceptions translate into real-world behavior—consumers not only adjust their opinions but may also distance themselves from the company altogether.

Key Takeaways for Businesses

Even when individuals initially resist believing fake news, its effect on corporate reputation can be subtle yet pervasive. Anecdotal evidence suggests that people often share content online despite uncertainty about its trustworthyness. How often do we see posts captioned with, “I’m not sure if this is true… but you never know”?

For companies, merely debunking fake news is not enough. Our research shows that warning alerts do little to prevent reputational harm – and today some social media do not show them anymore. Instead, businesses must address both direct and perceived public reactions. Demonstrating that key stakeholders, including experts, influencers, but also peers, remain confident in their reputation can help companies to better navigate reputational crises triggered by fake news.