The Impact of Media Sentiment on Firm Risk, Corporate Investment and Financial Policies

53 Pages Posted: 10 Jan 2018

See all articles by Jiexiang Huang

Jiexiang Huang

University of Otago - Department of Accountancy and Finance

Helen Roberts

University of Otago - Department of Accountancy and Finance

Eric K. M. Tan

University of Queensland - Business School

Date Written: January 10, 2018

Abstract

This study investigates the association between media sentiment and a comprehensive set of corporate decision making measures that capture firm, corporate investment, and financial policy risk. This study predicts that CEOs who achieve greater media coverage are more risk-seeking. We find a positive association between media sentiment and the volatility of future firm stock returns, research and development expenditures and cash holdings. CEOs are more overconfident when estimating returns and risk when media sentiment is strong and positive. CEOs are more risk-seeking when sentiment is negative in an attempt to salvage firm reputation and increase personal wealth. Liquidity is used to hedge risk when firms and CEOs face increased media coverage. Our findings support the role of media sentiment as an external mechanism monitoring firm risk and policies.

Keywords: Media sentiment, volatility of stock return, investment and financial policies, risk-seeking behaviour

JEL Classification: G32, G34

Suggested Citation

Huang, Jiexiang and Roberts, Helen and Tan, Eric K. M., The Impact of Media Sentiment on Firm Risk, Corporate Investment and Financial Policies (January 10, 2018). Available at SSRN: https://ssrn.com/abstract=3099307 or http://dx.doi.org/10.2139/ssrn.3099307

Jiexiang Huang (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

Helen Roberts

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand
6434798072 (Phone)
6434798171 (Fax)

Eric K. M. Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

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