Home-Country Media Slant and Cross-Listed Stocks: The Case of Automotive Industry

Abstract

Is news reported more favorably in companies’ domestic newspapers than abroad? Do cross-country differences in media reporting reflect differences in investor sentiment? We test these hypotheses for the case of the automotive industry across the U.S., Germany, and Japan. Using comprehensive hand-coded news data, we show that companies obtain substantially more media coverage and are presented with a significantly more positive news tone in their home countries than abroad. The media slant increases during crisis periods and it predicts stock price deviations of cross-listed stocks. The predictive relation is strongest for news reported by journalists who have native-sounding names.

Keywords: media slant, media bias, textual analysis, investor sentiment, cross-listed stocks, confirmatory bias

JEL Classification: L82, D23, F23