Corporate misconduct, media coverage, and stock returns

Hee-Eun Kim, Hoje Jo, Tae-Wook Ahn and Junesuh Yi

International Review of Financial Analysis, 2022, vol. 84, issue C

Abstract: This study examines the impact of increased investor attention to corporate misconduct (CM) on stock returns. We show that media coverage provides an important channel through which investor awareness of corporate wrongdoings can be enhanced. Using a unique research setting in Korea based on text analysis during the 2008–2020 period, we find that investors exhibit short-term adverse reactions to CM events. More importantly, the increased social awareness of CM issues through media coverage leads investors to penalize firms more severely. We also find that the adverse reaction to CM events is more prominent for firms with a greater negative media tone and surprise. The combined evidence supports the investor attention theory. Furthermore, the negative effects of CM on stock returns are smaller for firms with positive Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) reputations, consistent with the insurance theory.

Keywords: Corporate misconduct (CM); Media coverage; Investor attention; Insurance theory (search for similar items in EconPapers)
JEL-codes: G14 G41 L82 M14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003313

DOI: 10.1016/j.irfa.2022.102381

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