Media Coverage and Foreign Share Discount Puzzle in China

European Journal of Finance, Forthcoming

32 Pages Posted: 25 Jun 2012 Last revised: 20 Dec 2012

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Robert Dixon

Durham Business School

Wenxuan Hou

University of Edinburgh - Business School; Shanghai Lixin University of Accounting and Finance

Edward Lee

University of Manchester - Alliance Manchester Business School

Date Written: December 20, 2012

Abstract

There is growing evidence in the finance literature that media coverage can influence security pricing by facilitating news dissemination and reducing informational frictions even if it does not provide new information. This study examines the role of media coverage in the well-known foreign share discount puzzle in China. We show that differential level of news coverage for the same firm by Chinese and English media is significantly associated with the foreign share discount. Specifically, the discount is greater among firms with relatively more Chinese than English press coverage. We also find this effect more pronounced among firms with less analyst following and less institutional ownership. This implies that media coverage compensates for limitations in analyst coverage and is more influential among less sophisticated investors. Our evidence is robust to controls of other determinants of Chinese foreign share discount documented by previous literature. Despite of the widespread belief that the Chinese media is tightly controlled, our study reveals that it still plays an influential role in the capital market.

Keywords: media coverage, foreign share discount, China

JEL Classification: G14, L82

Suggested Citation

Cumming, Douglas J. and Dixon, Robert and Hou, Wenxuan and Lee, Edward, Media Coverage and Foreign Share Discount Puzzle in China (December 20, 2012). European Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2089974 or http://dx.doi.org/10.2139/ssrn.2089974

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Robert Dixon

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom
+44 191 334 5382 (Phone)
+44 191 334 5201 (Fax)

Wenxuan Hou (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

Shanghai Lixin University of Accounting and Finance ( email )

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

Booth St. West (Crawford House)
Manchester, M15 6PB
United Kingdom

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