Uneasy lies the head that wears a crown: Firm network status and market response to negative rumors

Michelle Xiaomin Fan, Huiying Wu, Sammy Xiaoyan Ying and Jiaxing You

Pacific-Basin Finance Journal, 2023, vol. 82, issue C

Abstract: This study investigates whether firm status in networks is a burden in the context of negative rumors. We use a network approach to capture firms' network of affiliations through cross-shareholding and to identify status hierarchies embedded in the relational structure. Using a sample of 1428 negative rumors related to 913 firms during the period 2007–2015, we find that the market responds negatively to negative rumors and that high-status firms suffer more than low-status firms do. Our mechanism tests show that high-status firms attract more attention from the media than low-status firms and that differential media attention plays a mediating role in the relationship between firm status and market response to rumors. In addition, we find that investor sentiment strengthens the status-market response relation. Further analyses show that although high-status firms vigorously deny rumors by rumor clarification announcements, their denial strategy does not function as intended. These results provide robust evidence that status is a burden when encountering negative rumors and that media play an essential role in facilitating the relationship between firm status and market reaction to negative rumors.

Keywords: Firm status; Rumor; Media (search for similar items in EconPapers)
JEL-codes: G14 G32 L14 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002330

DOI: 10.1016/j.pacfin.2023.102162

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