TY - JOUR
T1 - Does media coverage deter firms from withholding bad news? Evidence from stock price crash risk
AU - An, Zhe
AU - Chen, Chen
AU - Naiker, Vic
AU - Wang, Jun
PY - 2020/10
Y1 - 2020/10
N2 - Spurred by the informational and disciplinary roles that the media fulfils, this study provides initial evidence on how higher media coverage is associated with a lower tendency of firms withholding bad news, proxied by stock price crash risk. Our main findings are robust to a battery of tests that account for endogeneity concerns including a difference-in-differences analysis based on newspaper closures that exogenously reduce media coverage and a regression-discontinuity design analysis based on the top band of Russell 2000 and lower band of Russell 1000 index stocks. Additional tests reveal that the negative relation between media coverage and stock price crash risk is concentrated within firms with more negative and novel news coverage and firms with higher litigation or reputation risks. We also find that media plays an important role in reducing future stock price crash risk when there is reduced monitoring by other external monitoring mechanisms such as external auditors, financial analysts, and institutional shareholders.
AB - Spurred by the informational and disciplinary roles that the media fulfils, this study provides initial evidence on how higher media coverage is associated with a lower tendency of firms withholding bad news, proxied by stock price crash risk. Our main findings are robust to a battery of tests that account for endogeneity concerns including a difference-in-differences analysis based on newspaper closures that exogenously reduce media coverage and a regression-discontinuity design analysis based on the top band of Russell 2000 and lower band of Russell 1000 index stocks. Additional tests reveal that the negative relation between media coverage and stock price crash risk is concentrated within firms with more negative and novel news coverage and firms with higher litigation or reputation risks. We also find that media plays an important role in reducing future stock price crash risk when there is reduced monitoring by other external monitoring mechanisms such as external auditors, financial analysts, and institutional shareholders.
KW - Media coverage
KW - Stock Price crash risk
KW - Informational role
KW - Disciplinary role
UR - http://www.scopus.com/inward/record.url?scp=85086881822&partnerID=8YFLogxK
U2 - 10.1016/j.jcorpfin.2020.101664
DO - 10.1016/j.jcorpfin.2020.101664
M3 - Article
AN - SCOPUS:85086881822
SN - 0929-1199
VL - 64
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 101664
ER -