Media News and Earnings Management Prior to Equity Offerings

51 Pages Posted: 10 Sep 2015 Last revised: 29 Jun 2016

See all articles by Salim Chahine

Salim Chahine

American University of Beirut - Olayan School of Business

Sattar Mansi

Virginia Polytechnic Institute & State University

Mohamad Mazboudi

American University of Beirut

Date Written: September 10, 2015

Abstract

We examine whether media news reflect the extent to which issuing firms manage their earnings prior to their equity carve-outs (ECOs). We posit that managers will strategically respond to media requests prior to their equity offerings in order to signal their type and differentiate themselves from others. We find that media news at the time of the ECO is negatively related to earnings management during the year prior to the ECO date. However, when we examine the nature of media news (informative vs uninformative), we find that earnings management is negatively (positively) related to informative (uninformative) media news. Moreover, while price revision is positively related to both informative and uninformative media news, ECO underpricing is positively related to uninformative media news and negatively related to informative media news. This suggests that uninformative news induces investor sentiment during the first day of trading, whereas informative news reduces the asymmetric information between issuing firms and outside investors. Consistently, we document that long-run ECO performance decreases with earnings management and uninformative news, but is positively related to informative news. Our results highlight the importance of the nature of news in media coverage for issuers seeking to differentiate themselves from those managing their earnings prior to equity offerings, evidence consistent with signaling.

Keywords: Media News; Earnings Management; Equity Offering; Signaling; Price Revision; Underpricing.

JEL Classification: G32, G34, M41

Suggested Citation

Chahine, Salim and Mansi, Sattar and Mazboudi, Mohamad, Media News and Earnings Management Prior to Equity Offerings (September 10, 2015). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2658635 or http://dx.doi.org/10.2139/ssrn.2658635

Salim Chahine (Contact Author)

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961-1-374-374 (Phone)

Sattar Mansi

Virginia Polytechnic Institute & State University ( email )

Mohamad Mazboudi

American University of Beirut ( email )

Olayan School of Business
PO Box 11-0236 Riad El Solh
Beirut
Lebanon
(961)1350000 (Phone)

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