Media attention and firm value: International evidence

• Published date: 01 September 2021
• Author: Tung L. Dang,Thi H. H. Huynh,Manh T. Nguyen
• Date: 01 September 2021
• DOI: http://doi.org/10.1111/irfi.12305

ORIGINAL ARTICLE

Media attention and firm value:

International evidence

Tung L. Dang | Thi H. H. Huynh | Manh T. Nguyen

University of Economics, The University of

Danang, Danang City, Vietnam

Correspondence

Tung L. Dang, University of Economics, The

University of Danang, Vietnam.

Email: dangtlam@due.edu.vn

Funding information

Vietnam National Foundation for Science and

Technology Development, Grant/Award

Number: 502.02-2015.07

Abstract

We investigate the relation between media attention and firm

value and whether this relation varies across different institu-

tional and information environments. Using a comprehensive

dataset of global media from 41 countries for the period

between 2000 and 2010, we find that media coverage is pos-

itively associated with firm value. In addition, we find support

for two channels through which the value effect of media

coverage operates: the information asymmetry reduction

channel and the monitoring channel. Importantly, we docu-

ment that the positive association between media coverage

and firm value is stronger for firms in countries with weak

institutional characteristics or less transparent information

environments. Our findings provide additional insights into

the role of themedia in internationalequity markets.

KEYWORDS

corporate governance, firm value, institutional characteristics,

media coverage

JEL CLASSIFICATION

G14; G15; G32; G34

All authors contributed equally to this study.

We are grateful to Xiaoyun Yu (the Editor), an anonymous Associate Editor, an anonymous referee, Shijun Guo (the discussant at the 32nd Australasian

Finance and Banking Conference 2019) and the members of the UE-UD Teaching and Research Team in Corporate Finance and Asset pricing (TRT-CFAP)

for their helpful comments and suggestions. We would like to thank Fariborz Moshirian and Bohui Zhang for sharing their data. A part of this article was

completed when Tung Lam Dang was at Institute of Global Finance, UNSW Business School, The University of New South Wales. This research is funded

by the Vietnam National Foundation for Science and Technology Development (NAFOSTED) under grant number 502.02-2015.07. All remaining errors are

our own.

Received: 30 May 2019 Revised: 18 February 2020 Accepted: 2 March 2020

DOI: 10.1111/irfi.12305

© 2020 International Review of Finance Ltd. 2020

International Review of Finance. 2021;21:865–894. wileyonlinelibrary.com/journal/irfi 865

1|INTRODUCTION

It is well documented that the media plays an important role in corporate governance. However, what is less clear is

how effective the media is in this role. Existing evidence supports the argument thatthe media helps reduce informa-

tion asymmetry and mitigate agency conflicts by disseminating information to a wider audience and (or) uncovering

new information through original investigative reporting (Bushee, Core, Guay, & Hamm, 2010; Dyck, Volchkova, &

Zingales, 2008; Fang & Peress, 2009; Liu & McConnell, 2013; Miller, 2006; Tetlock, 2010; Tetlock, Saar-

Tsechansky, & Macskassy, 2008; among others). However, the media may be biased in reporting information and

tend to focus on sensational issues, or it may be manipulated by firms (Ahern & Sosyura, 2014, 2015; Core, Guay, &

Larcker, 2008; Gurun & Butler, 2012; Solomon, 2012). In such cases, the media may exacerbate information asym-

metry and may not be effective in the corporate governance role.

In international markets, the role of the media is even more ambiguous. The difference in institutional and infor-

mation environments across countries can affect both the effectiveness of the media as a governance mechanism

and the media's incentives to collect and disseminate information. Therefore, the value effect of media coverage

might be different, or even nonexistent, among countries.

Overall, the media has the potential to affect firm value in both positive and negative ways, and the question of

what the impact is needs to be resolved empirically. To date, however, the effect of media coverage on firm value

remains an open question in the literature. In addition, most previous studies on the role of the media primarily focus

on a single-country setting, and the literature has been silent on the importance of country-level institutional and

information characteristics in an international environment. Our study fills this gap by investigating the relation

between media coverage and firm value and the role of country-level institutional and information environments on

this media-performance relation.

We construct a comprehensive dataset for firms across 41 countries over the period from 2000 to 2010. This

international dataset allows us to exploit the rich variation in media coverage across countries to examine whether

and how media coverage is related to firm value. More importantly, given the substantial variation in institutional

infrastructures and information environments across countries that can drive the relation between media coverage

and firm value, this multicountry sample also allows us to test how country-level institutional characteristics and

information environments affect the media-performance relation and provide a better understanding of channels

through which media coverage is associated with firm value.

Whether and how media coverage is related to firm valuation is ambiguous a priori. On the one hand, firms with

greater media coverage might have better performance. This prediction is based on the dual informative role of the

media, namely, the information disseminative role and the information investigative role. First, by disseminating exis-

ting information to the public, the media helps reduce information asymmetry between firms and other important

market participants (Bushee et al., 2010; Fang & Peress, 2009; Tetlock, 2010). The firm's improved information envi-

ronment then enables more firm-specific information to become available to investors and be incorporated into

stock prices, which improves market efficiency and facilitates more value-enhancing investment decisions (Durnev,

Morck, & Yeung, 2004; Jin & Myers, 2006; Morck, Yeung, & Yu, 2000). In addition, by making firm actions and

behaviors widely known, the media can deter firm managers from self-interested actions and pressure them to act in

ways that are socially acceptable (Dai, Parwada, & Zhang, 2015; Dyck et al., 2008; Dyck & Zingales, 2002). There-

fore, through the information disseminative role, the media helps mitigate agency problems and improve corporate

governance. We refer to this argument as the information asymmetry reduction channel. Second, the media can help

improve the corporate governance of firms through its investigative reporting (Dyck et al., 2008; Dyck, Morse, &

Zingales, 2010; Dyck & Zingales, 2002; Joe, Louis, & Robinson, 2009; Miller, 2006; among others). By undertaking

original investigation and making this new information publicly available, the media is able to put even more pressure

on firms. In this information investigative role, the media acts as an independent monitor of firms' activities that

helps alleviate the moral hazard problems associated with firms' decisions. Stricter scrutiny by the media gives firm

managers a strong incentive to act in the best interests of shareholders and pursue value-maximizing activities. We

866 DANG ET AL.