Attention: The impact of media attention on market reaction to corporate violations

Chenxi Wang; Lei Zhou

doi:10.52396/JUSTC-2023-0037

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Open Access JUSTC Management 15 November 2023

Attention: The impact of media attention on market reaction to corporate violations

Chenxi Wang¹,
Lei Zhou^{2

,}

1.
School of Management, University of Science and Technology of China, Hefei 230026, China
2.
School of Public Affairs, University of Science and Technology of China, Hefei 230026, China

Cite this:

https://doi.org/10.52396/JUSTC-2023-0037

More Information

Author Bio:
Chenxi Wang is a postgraduate student at the School of Management, University of Science and Technology of China. Her research mainly focuses on risk and strategic management

Lei Zhou is an Associate Professor at the School of Public Affairs, University of Science and Technology of China (USTC). He received his Ph.D. degree from USTC in 2014. His research mainly focuses on risk and strategic management
Corresponding author: E-mail: zhoulei@ustc.edu.cn
Received Date: 08 March 2023
Accepted Date: 22 May 2023

Available Online: 15 November 2023

Abstract Full text PDF

Abstract

Abstract

Reducing market volatility and achieving high-quality development are important tasks for the Chinese capital market at the present stage. Based on the asset pricing role of media, this study used the event study to empirically examine the impact, as well as the heterogeneity from type and emotional tendency, of media attention on the market reaction to corporate violations from the perspective of limited attention. The results showed that the media’s prior attention to the listed company has a significantly negative impact on the market reaction after the company’s violation. The attention of network media and policy-oriented media has a significantly negative correlation with the market reaction after the company’s violation, while market-oriented media has no significant impact. Compared with neutral media attention, negative and positive media attention trigger more severe negative market reaction after company violations. Furthermore, the negative impact of media attention on the market reaction after corporate violations is mainly manifested in non-state-owned enterprises. The results demonstrate the important role of media attention in asset pricing and have important practical significance for better playing the role of the media, protecting the rights and interests of investors and achieving high-quality development of the capital market.

Graphical abstract

Media attention, media type, media emotional tendency, and market reaction to listed companies’ violations.

Abstract

Reducing market volatility and achieving high-quality development are important tasks for the Chinese capital market at the present stage. Based on the asset pricing role of media, this study used the event study to empirically examine the impact, as well as the heterogeneity from type and emotional tendency, of media attention on the market reaction to corporate violations from the perspective of limited attention. The results showed that the media’s prior attention to the listed company has a significantly negative impact on the market reaction after the company’s violation. The attention of network media and policy-oriented media has a significantly negative correlation with the market reaction after the company’s violation, while market-oriented media has no significant impact. Compared with neutral media attention, negative and positive media attention trigger more severe negative market reaction after company violations. Furthermore, the negative impact of media attention on the market reaction after corporate violations is mainly manifested in non-state-owned enterprises. The results demonstrate the important role of media attention in asset pricing and have important practical significance for better playing the role of the media, protecting the rights and interests of investors and achieving high-quality development of the capital market.

Public Summary

Based on the asset pricing role of media, this study used the event study to empirically examine the impact, as well as the heterogeneity from type and emotional tendency, of media attention on the market reaction to corporate violations from the perspective of limited attention.
The media’s prior attention to listed companies has a significant negative impact on the market reaction after corporate violations.
There is heterogeneity in media types and emotional effects of media coverage.

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References(65)

References

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Figure 1. Research model.

Figure 2. Abnormal return rate after corporate violation.

[1]	Feroz E H, Park K J, Pastena V. The financial and market effects of the SEC’s accounting and auditing enforcement releases. Journal of Accounting Research, 1991, 29: 107. doi: 10.2307/2491006
[2]	Huang Z, Wu G P. The market reaction and the impact on investors’ interest of the punishment of illegal disclosure. Journal of Northeast Normal University (Philosophy and Social Sciences), 2013 (3): 66–71. (in Chinese) doi: 10.16164/j.cnki.22-1062/c.2013.03.046
[3]	Tang T Z, Ma X, Song X Z. Financial restatement and financial market stability: Based on the perspective of stock price crash risk. Accounting Research, 2021 (11): 31–43. (in Chinese) doi: 10.3969/j.issn.1003-2886.2021.11.003
[4]	Zhang D N, Liu C L. Research on the impact of corporate social responsibility on stock market reactions to violation events. Chinese Journal of Management, 2022, 19 (9): 1288–1296. (in Chinese) doi: 10.3969/j.issn.1672-884x.2022.09.004
[5]	Jiang X L, Zhao Y L. Management power structure, violation and corporate value: The evidence from A-share listed companies. Journal of Shanxi Finance and Economics University, 2017, 39 (5): 68–81. (in Chinese) doi: 10.13781/j.cnki.1007-9556.2017.05.006
[6]	Zhu G D, Shen W T. A study on effectiveness of penalties of listed companies’ violation of regulations. Commercial Research, 2011 (8): 101–106. doi: 10.13902/j.cnki.syyj.2011.08.007
[7]	Ma D F, Qian B Y. Social trust, corporate violations and market reactions. Journal of Zhongnan University of Economics and Law, 2016 (6): 77–84. (in Chinese)
[8]	Liu L H, Xu Y P, Rao P G, et al. The contagion effects of irregularities within business groups. Journal of Financial Research, 2019 (6): 113–131. (in Chinese)
[9]	Zhu J. Media sentiment, government supervision strategy, and stock price fluctuation risk. Discrete Dynamics in Nature and Society, 2021, 2021: 5532663. doi: 10.1155/2021/5532663
[10]	Liu C, Wang S L, Li D. Hidden in a group? Market reactions to multi-violator corporate social irresponsibility disclosures. Strategic Management Journal, 2021, 43 (1): 160–179. doi: 10.1002/smj.3330
[11]	Kipp P C, Zhang Y, Tadesse A F. Can social media interaction and message features influence non-professional investors’ perceptions of firms. [J]. Journal of Information Systems, 2019, 33 (2): 77–98. doi: 10.2308/isys-52067
[12]	Wu D. Does social media get your attention. Journal of Behavioral Finance, 2019, 20 (2): 213–226. doi: 10.1080/15427560.2018.1505729
[13]	Liang C, Tang L, Li Y, et al. Which sentiment index is more informative to forecast stock market volatility? Evidence from China. International Review of Financial Analysis, 2020, 71: 101552. doi: 10.1016/j.irfa.2020.101552
[14]	Shen X. Trading and non-trading period Internet information flow and intraday return volatility. Physica A: Statistical Mechanics and Its Applications, 2016, 451: 519–524. doi: 10.1016/j.physa.2016.01.086
[15]	Zhang Y, Song W, Shen D, et al. Market reaction to Internet news: Information diffusion and price pressure. Economic Modeling, 2016, 56: 43–49. doi: 10.1016/j.econmod.2016.03.020
[16]	Da Z, Engelberg J, Gao P. The sum of all FEARS investor sentiment and asset prices. The Review of Financial Studies, 2015, 28: 1–32. doi: 10.1093/rfs/hhu072
[17]	Quan X F, Hong T, Wu S N. Selective attention, the ostrich effect and market anomalies. Journal of Financial Research, 2012 (3): 109–123. (in Chinese)
[18]	Zhang S Q. Notice of clarification, media coverage and the stock price of listed company. The Theory and Practice of Finance and Economics, 2018, 39 (1): 50–55. (in Chinese) doi: 10.3969/j.issn.1003-7217.2018.01.008
[19]	Zhong H B, Zeng Y M. Can financial coverage convince the market? Based on the empirical research of market rumors in China. Journal of Fujian Normal University (Philosophy and Social Sciences Edition), 2019 (06): 87–98, 170. (in Chinese) doi: 10.12046/j.issn.1000-5285.2019.06.010
[20]	Xu X D, Zeng S X, Zou H L, et al. The impact of corporate environmental violation on shareholders’ wealth: A media coverage perspective. Business Strategy and the Environment, 2016, 25 (2): 73–91. doi: 10.1002/bse.1858
[21]	Fang L, Peress J. Media coverage and the cross-section of stock returns. Journal of Finance, 2009, 64 (5): 2023–2052. doi: 10.1111/j.1540-6261.2009.01493.x
[22]	Dougal C, Engelberg J, Garcia D, et al. Journalists and the stock market. Review of Financial Studies, 2012, 25 (3): 639–679. doi: 10.1093/rfs/hhr133
[23]	Guan Y J, Zhang J, Liu Y. Media attention, investor sentiment and stock market volatility. Statistics & Decision, 2022, 38 (24): 143–148. (in Chinese) doi: 10.13546/j.cnki.tjyjc.2022.24.028
[24]	Mitchell M L, Mulherin J H. The impact of public information on the stock market. The Journal of Finance, 1994, 49 (3): 923–950. doi: 10.1111/j.1540-6261.1994.tb00083.x
[25]	Chan W S. Stock price reaction to news and no-news: Drift and reversal after headlines. Journal of Financial Economics, 2003, 70 (2): 223–260. doi: 10.1016/s0304-405x(03)00146-6
[26]	Tetlock P C. Giving content to investor sentiment: The role of media in the stock market. The journal of finance, 2007, 62 (3): 1139–1168. doi: 10.1111/j.1540-6261.2007.01232.x
[27]	Takeda F, Yamazaki H. Stock price reactions to public TV programs on listed Japanese companies. Economics Bulletin, 2006, 13 (11): 1–7.
[28]	An Z, Chen C, Naiker V, et al. Does media coverage deter firms from withholding bad news? Evidence from stock price crash risk. Journal of Corporate Finance, 2020, 64: 101664. doi: 10.1016/j.jcorpfin.2020.101664
[29]	Kahneman D. Attention and Effort. Englewood Cliffs, USA: Prentice Hall, 1973.
[30]	Al-Nasseri A, Ali F M. What does investors’ online divergence of opinion tell us about stock returns and trading volume. [J]. Journal of Business Research, 2018, 86: 166–178. doi: 10.1016/j.jbusres.2018.01.006
[31]	Barber B M, Odean T. All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. Review of Financial Studies, 2008, 21 (2): 785–818. doi: 10.1093/rfs/hhm079
[32]	Jia X C, Zhao Y, Meng S, et al. Limited attention of investors and the liquidation of non-tradable shares. Journal of Financial Research, 2010 (11): 108–122. (in Chinese)
[33]	Jacob B, Ronen F, Shimon K. Information, trading, and volatility: Evidence from firm-specific news. Review of Financial Studies, 2019, 32 (3): 992–1033. doi: 10.1093/rfs/hhy083
[34]	Liu J L, Huang C Y, Dan L, et al. Opinion leadership, limited attention and overreaction. Economic Research Journal, 2018 (3): 126–141. (in Chinese)
[35]	Lu Q Y, Chen H. Media coverage, investor sentiment and stock price volatility. Research on Financial and Economic Issues, 2021 (3): 60–67. (in Chinese) doi: 10.19654/j.cnki.cjwtyj.2021.03.007
[36]	Lv H K, Liu Z H, Qian Y X, et al. Relationship between financial news and stock market fluctuations. Data Analysis and Knowledge Discovery, 2021, 5 (1): 99–111. (in Chinese) doi: 10.11925/infotech.2096-3467.2020.0063
[37]	Renault T. Intraday online investor sentiment and return patterns in the U.S. stock market. Journal of Banking & Finance, 2017, 84: 25–40. doi: 10.1016/j.jbankfin.2017.07.002
[38]	Tausch F, Zumbuehl M. Stability of risk attitudes and media coverage of economic news. Journal of Economic Behavior & Organization, 2018, 150 (6): 295–310. doi: 10.1016/j.jebo.2018.01.013
[39]	Zhong H B, Shen Y Q, Zhang Y M. The influence of news discourse and stock price based on the perspective of financial media types. Journal of Beijing Institute of Technology (Social Sciences Edition), 2018, 20 (3): 98–104. (in Chinese) doi: 10.15918/j.jbitss1009-3370.2018.2834
[40]	Li P G, Shen Y F. The role of media in corporate governance: Empirical evidence from China. Economic Research Journal, 2010, 45 (4): 14–27. (in Chinese)
[41]	Rodriguez F, Garza S. Predicting emotional intensity in social networks. Journal of Intelligent & Fuzzy Systems: Applications in Engineering and Technology, 2019, 36 (5): 4709–4719. doi: 10.3233/jifs-179020
[42]	Zhang L. Public information disclosure, media report tone and stock price behavior: A news report perspective based on equity change information. Friends of Accounting, 2017 (4): 96–99. (in Chinese) doi: 10.3969/j.issn.1004-5937.2017.04.021
[43]	Zhang T J, Sun Q. Over-optimistic sentiment of Internet media and stock price crash risk. Modernization of Management, 2022, 42 (1): 34–39. (in Chinese) doi: 10.19634/j.cnki.11-1403/c.2022.01.006
[44]	Li H. The impact of investor expectations on stock prices. The Journal of World Economy, 2001 (6): 19–22. (in Chinese)
[45]	Dai Y Y, Yue P, Liu S C. Media supervision, government intervention and corporate governance: Evidence from the perspective of financial restatement of Chinese listed companies. The Journal of World Economy, 2011 (11): 121–144. (in Chinese)
[46]	Shiller R J. Measuring bubble expectations and investor confidence. The Journal of Psychology and Financial Markets, 2000, 1 (1): 49–60. doi: 10.1207/s15327760jpfm0101_05
[47]	Merton R C. A simple model of capital market equilibrium with incomplete information. The Journal of Finance, 1987, 42 (3): 483–510. doi: 10.1111/j.1540-6261.1987.tb04565.x
[48]	Quan X F, Yin H Y, Wu H J. Analysis of asymmetric effects of media coverage on IPO stock price evidence from Chinese growth enterprise market. Accounting Research, 2015 (6): 56–63. (in Chinese) doi: 10.3969/j.issn.1003-2886.2015.06.008
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[50]	Liu F, Ye Q, Li Y J. Impacts of interactions between news attention and investor attention on stock returns: Empirical investigation on financial shares in China. Journal of Management Sciences in China, 2014, 17 (1): 72–85. (in Chinese) doi: 10.3969/j.issn.1007-9807.2014.01.007
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