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

57 Pages Posted: 21 May 2020 Last revised: 15 Dec 2020

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: December 15, 2020

Abstract

We show that during corporate litigation, media companies that share common institutional blockholders with the defendant firms (i.e., cross-held media) cover the litigation events more favorably than non-cross-held media. The favorable news coverage boosts investor sentiment, mitigates negative stock price impact, and allows cross-blockholders more time to exit their positions in troubled defendants at higher prices – a de facto “pump and dump” strategy. This strategy is especially prominent among activist blockholders. It is also stronger when there is more room to manipulate investor sentiment, and when an extended period of price support is necessary for institutions to unload large positions.

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 (December 15, 2020). 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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