Stock pledge and media slant: evidence from China

ABSTRACT

This paper explores the relationship between stock pledges and media slants. Using data from China, we find that firms with controlling shareholders that start to pledge shares or increase shares pledging for loans are covered with more positive media tones. The association is more prominent when firms with higher margin call pressure, closer relationships with media, more individual investor holdings, and less analyst coverage. We further investigate the underlying channels through which stock pledges may affect media slant. Our results show that stock-pledging firms promote media slants by releasing positive news in pre-announcements and increasing advertising expenditure. We also find that the optimistic media slant of pledging firms results from increased favorable media reports instead of reducing negative information. Moreover, positive media slants will lead to a higher excess stock return of pledging firms. Compared with negative news, positive media coverage is more likely to affect pledging firms’ stock returns. Our findings prove that share-pledging firms may engage in media management. We also provide evidence for the existence of media bias in emerging markets.

KEYWORDS:

• Corporate governance
• stock pledge
• media slant
• media news

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. The data is from the website http://www.sse.com.cn/. Compared with institutional investors, individuals’ decisions are affected by media to a greater extent (Barber and Odean 2008; Gurun and Butler 2012).

2. A-shares are denominated in the Chinese Yuan (RMB) and traded in the Shanghai and Shenzhen stock exchanges. In 2005, the China Securities Regulatory Commission (CSRC) formally launched the split share reform, which required non-tradable shareholders to pay tradable shareholders to gain the right to trade. However, the reform was not fully completed until 2007.

3. The disclosure requirements and accounting rules in the financial services industry are significantly different from other industries represented the Chinese stock market, so we delete the samples from that industry.

4. In the Chinese stock market, a firm receiving special treatment (with ‘ST’ or ‘*ST’ in the stock ticker symbol) means that it has a risk of delisting. Because these firms have serious operational problems, their media coverage may be significantly negative.

5. Based on the Chinese Corporation Law, the controlling shareholders are defined as the shareholders whose capital contribution accounts for more than 50% of the total assets or whose holding shares’ value is beyond 50% of the total value of the capital stock. Besides, shareholders who have an important effect on firms’ decisions are also considered controlling shareholders even if their capital contribution and shareholdings do not meet the requirements. The data of controlling shareholders is collected from CSMAR database.

6. We first collect the stock code and business scope of each sample firm’s affiliated companies from the CSMAR database. Connection equals one if the firm has at least one affiliated company in the media industry. For firms without affiliated companies in the media industry, we manually collect and read their senior managers’ resumes from the CSMAR database. Connection equals one if the firms have at least one senior manager (including CEO, directors, or supervisors) has experience in the media industry. Connection equals zero for other firms. According to the China Securities Regulatory Commission (CSRC), the media industry involves the publishing industry (including books, newspapers, magazines, materials, software, etc.), audio-visual industry, radio, television, and film, and information communication industry.

Additional information

Funding

This work is supported by the National Social Science Foundation of China [Grant No. 18XJY024]