False News Determinants and its Association with Financial Reporting Quality
59 Pages Posted: 17 Aug 2020
Date Written: July 12, 2020
We examine the determinants and financial reporting quality implications of false news about a company. False news is defined as information presented as factually accurate, but contain fabricated facts and is deliberately made public to mislead the reader. Importantly, it is later denied by a credible source. We investigate false news by focusing on negative false news initiated outside the firm. Building on financial motives behind incidents of false news, we examine whether industry characteristics and news coverage play a role in making a firm a target for false news. We find that lower competition, market leadership, and higher news coverage are associated with an increased likelihood of false news. We further examine the impact of false news on the firm’s financial reporting behavior. Consistent with our predictions, we find that firms targeted by false news have lower financial reporting quality.
Keywords: False News, Accounting Quality, Earnings Management
JEL Classification: M41
Suggested Citation: Suggested Citation