News sentiment and crash risk

ABSTRACT

This paper uses firm-specific released news data in the Chinese market to examine the relationship between news sentiment and stock price crash risk between 2007 and 2017. To do so, we develop a firm-specific news sentiment index by quantifying the textual contents in the news. Our results show that firms with better news sentiment are less likely to be involved in future stock crash risk. Also, we find that CEOs approaching retirement are an important mechanism for explaining the relationship between news sentiment and firm crash risk. Our main findings still hold after conducting several robustness tests.

KEYWORDS:

• News sentiment
• crash risk
• retirement CEOs
• China market

JEL CLASSIFICATION:

• G30
• G34

Disclosure statement

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

Notes

¹ Our measurement of news sentiment is through Cloud Natural Language API (https://cloud.google.com/natural-language/)..

² We obtain the news dataset from Stock Market & Accounting Research (CSMAR)..

³ We construct the news sentiment score according to the Guides to the basics of Natural Language API (https://cloud.google.com/natural-language/docs/basics#: :text=The%20Natural%20Language%20API%20provides,into%20a%20series%20of%20sentences)..

⁴ The current statutory retirement age in China is 60 years for male workers, and 50 years for female workers..