Is all publicity good publicity? The impact of direct and indirect media pressure on the adoption of governance practices (original) (raw)

Why companies need to be governed at all? The answer, particularly with respect to listed companies, is, to maintain the trust of investors. A large section of investors in today’s world, devotedly participates in capital market, but they remain unaware of various happenings inside the company premises. Transparency is the need of the hour and this requirement demands not only continuous disclosures by companies, strong legislation and law enforcement, but also a courageous and righteous free media. What role can media play? What are the possible limitations associated with its role? These questions are discussed in this paper along with a continuum, developed for different role levels of media

Using 636 large acquisition attempts that are accompanied by a negative stock price reaction at their announcement (" value-reducing acquisition attempts ") from 1990 to 2010, we find that, in deciding whether to abandon a value-reducing acquisition attempt, managers' sensitivity to the firm's stock price reaction at the announcement is influenced by the level and the tone of media attention to the proposed transaction. We interpret the results to imply that managers have reputational capital at risk in making corporate capital allocation decisions and that the level and tone of media attention heighten the impact of a value-reducing acquisition on the managers' reputational capital. To the extent that value-reducing acquisition attempts are more likely to be abandoned, the media can play a role in aligning managers' and shareholders' interests.

We examine the governance role of media coverage on the M&A decision-making process using a large sample of M&A events, and relate those events to news items appeared in leading newspapers and on newswires. Our results show that negative media coverage reduces the probability of a firm making an acquisition. It does so by playing a number of governance roles: We find that negative media disciplines managers, by influencing turnover decisions and escalating costs of acquisitions, and shapes ingratiatory behavior of managers, by giving useful feedback and providing an efficient platform for self-disclosure. Our results further show that distinct media sources (newspaper and newswire) play governance roles differently. We document that newspaper items primarily provide important feedback to managers by inducing the market reactions to M&A announcements and influence CEO turnover decisions. On the other hand, besides influencing CEO turnover decisions, negative newswire coverage weakens...

This study examined whether corporate public agenda setting or corporate agenda building exerts a stronger influence on firms’ public prominence. After controlling for the effects of firms’ advertising expenditures and existing levels of prominence, results showed that in the absence of media salience, firms’ public agenda-setting efforts had no influence on their change in prominence. In the presence of media salience, however, firms’ public agenda-setting efforts had a negative influence on their change in prominence. In the context of public prominence, the study supports the news media's role as a third-party endorsement of firms as newsworthy entities. Future research should re-examine these relationships in the age of social media.

The study investigates the effect of press coverage on voluntary disclosure in the narrative sections of annual reports of Australian and Chinese listed companies. A combination of the legitimacy theory and media agenda setting theory is employed to examine their application in the context of different country-level governance mechanisms, in particularly in Anglo-Saxon (Australia) and Asian (China) economies. The study is based on a sample of 200 listed companies and employs multiple regression analyses. The findings show that press coverage is positively and significantly associated with voluntary disclosure suggesting that closer media attention increases voluntary disclosure. The effect of press coverage is mediated by country-level governance mechanisms, suggesting stronger association in countries with stronger legal enforcement mechanisms

Stock market prices reflect information regarding firms’ business environments, operations and, in general, their fundamentals. Recently, various studies have analysed the link between news coverage and stock prices but no evidence exists on how channels and ways of communication of information affect investors’ behaviour. We analyses these aspects focussing on a large sample of corporate governance news published between 2003 and 2007 in ‘Il Sole 24 Ore’, Italy's major financial newspaper. We show that before news is made public investors are only able to assess the type of corporate governance event underlying it. After publication, investors are influenced by the content (positive or negative) and the tone of communication (strong or weak) of the news.