Media Tone and Stock Price Crash Risk: Evidence from China

Ruwei Zhao, Ruixin Fan (), Xiong Xiong, Jianli Wang and Jitka Hilliard
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Ruwei Zhao: Business School, University of Jinan, Jinan 250002, China
Ruixin Fan: College of Management and Economics, Tianjin University, Tianjin 300072, China
Xiong Xiong: College of Management and Economics, Tianjin University, Tianjin 300072, China
Jianli Wang: College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Nanjing 211106, China
Jitka Hilliard: Harbert College of Business, Auburn University, Auburn, AL 36849, USA

Mathematics, 2023, vol. 11, issue 17, 1-14

Abstract: Following the 2008 financial crisis, multiple studies have contributed to the research on stock price crashes. However, most of the studies on stock price crashes are from the corporate management perspective, focusing on factors such as the board’s character, the CEO’s power, the brand’s capital, and ESG performance. Few studies have taken external information, such as media coverage, into consideration. Meanwhile, in the era of 5G, internet media has witnessed exponential growth, heavily enhancing the speed of information transmission; this could possibly impact the future risk associated with stock price crashes. From this perspective, our study extends the coverage by investigating the relationship between internet media coverage and the potential risk of stock price crashes. Using a comprehensive dataset of the Chinese stock market from 2008 to 2021, we found that the optimistic (pessimistic) tones of internet media were positively (negatively) correlated with the future risk of crashes. These findings remained firm after accounting for winsorization, corporate governance control, firm fixed effects, and instrumental variable analysis. Further analyses showed that media tone impacts were more pronounced for firms with higher analyst coverage. Our study indicates that investors, especially retail investors, who are more easily influenced by internet media, should be more cautious about the increasingly favorable internet coverage of listed companies, which could result in a heightened future risk of stock price crashes. Moreover, regulators should inform investors when listed companies are experiencing more favorable internet coverage to minimize potential stock market fluctuations and investment losses for investors.

Keywords: risk of stock price crash; internet media tone; corporate governance; analyst coverage (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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