Media Sentiment and Shareholder Litigation

52 Pages Posted: 2 Jun 2022

See all articles by Richard A. Cazier

Richard A. Cazier

University of North Texas

Jianning Huang

University of Memphis - Fogelman College of Business and Economics

Jeff L. McMullin

Indiana University - Kelley School of Business - Department of Accounting

Fuzhao Zhou

University of Texas at El Paso

Date Written: May 25, 2022

Abstract

Prior literature finds that media sentiment influences stock prices. We extend this literature by examining the effects of media sentiment on real economic outcomes. Specifically, we test whether negative media sentiment predicts a greater likelihood that a firm announcing an accounting restatement is subsequently targeted by a shareholder lawsuit. Using an entropy balancing approach, we find shareholder litigation is more likely to follow firms’ restatement announcements when media coverage of the restatement is negatively slanted. We find that negative media sentiment affects the likelihood of shareholder litigation after restatement announcements by exacerbating the market response to firms’ accounting restatements, which increases potential damages associated with the restatement. We also find that negative media sentiment has an incremental effect on the likelihood of shareholder litigation beyond its effect on restatement announcement returns. Overall, our results suggest the influence of media sentiment in shaping real economic outcomes in financial markets may be greater than previously appreciated.

Suggested Citation

Cazier, Richard A. and Huang, Jianning and McMullin, Jeff L. and Zhou, Fuzhao, Media Sentiment and Shareholder Litigation (May 25, 2022). Available at SSRN: https://ssrn.com/abstract=4119585 or http://dx.doi.org/10.2139/ssrn.4119585

Richard A. Cazier (Contact Author)

University of North Texas ( email )

College of Business Administration
P.O. Box 305219
Denton, TX 76203
United States
940-369-8612 (Phone)

Jianning Huang

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
Memphis, TN usa 38152-3370
United States

HOME PAGE: http://umdrive.memphis.edu/jhuang9/public/homepage.pdf

Jeff L. McMullin

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Fuzhao Zhou

University of Texas at El Paso ( email )

United States

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