‘Pump and Dump’ through Media Tone: The Role of Cross-Blockholders in Corporate Litigation

66 Pages Posted: 21 May 2020 Last revised: 2 Jul 2021

See all articles by Jie He

Jie He

University of Georgia - Department of Finance

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Yabo Zhao

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance

Date Written: June 26, 2021

Abstract

Institutional investors often own equity blocks of both media and industrial firms. When industrial firms become defendants of corporate litigation, institutions influence media companies that they simultaneously blockhold to provide favorable coverage of the defendants. Doing so boosts investor sentiment, mitigates negative price impact, and allows institutions extra time to exit positions in troubled defendants – a de facto “pump-and-dump” strategy. “Dumped” shares are largely absorbed by retail investors. Media boost sentiment by either playing down legal ramifications in question or playing up other positive matters. The strategy is especially prominent among activists, and likely involves institutions’ deliberate and active participation.

Keywords: pump and dump, media tone, market sentiment, corporate litigation, institutional blockholders

Suggested Citation

He, Jie and Xia, Han and Zhao, Yabo, ‘Pump and Dump’ through Media Tone: The Role of Cross-Blockholders in Corporate Litigation (June 26, 2021). Available at SSRN: https://ssrn.com/abstract=3584740 or http://dx.doi.org/10.2139/ssrn.3584740

Jie He

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Han Xia (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Yabo Zhao

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance ( email )

800 West Campbell
Richarson, TX 75080
United States

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