The basic function of the capital market is to make use of the signal mechanism of the stock price to realize the optimal allocation of resources. In a functional and efficient securities market, the role of the price mechanism depends on the full flow of information. As for the media, the information intermediary in the capital market, we empirically examine the impact of media coverage on the value-relevance of earnings and further investigate through which mechanisms the media play its role from the perspective of information transfer and monitoring. Using the data of listed companies from 2007 to 2012, we find that media coverage increases the value-relevance of earnings with more earnings information absorbed into the stock price. Further evidence shows that the influence of media coverage on the value-relevance of earnings is stronger for companies with lower information transparency; conversely, for those with higher investors’ attention, the effect of media coverage on the value-relevance of earnings weakens. Finally, we test the mechanism through which the media influence the value-relevance of earnings. The results indicate that the improvement of media coverage to the value-relevance of earnings is mainly derived from expanding the base of investors, increasing the investors’ cognitive level and strengthening the corporate governance. The contributions of this study are as follows: First, the analysis expands the existing research of news media. This paper analyzes the role of news media in the capital market from the perspective of accounting earnings relevance, and provides empirical evidence for understanding the role of news media in emerging market. Second, our research also enriches the literature of value relevance of accounting information, which not only helps to understand the role of news media as an important information intermediary in stock pricing, but also enhances the recognition of the factors influencing accounting earnings value relevance. Third, this paper analyzes through which channels news media affect earnings value relevance, and provides empirical evidence. It helps to further understand the role of news media’s information dissemination and supervision. Finally, the research of this paper also deepens the understanding of the pricing efficiency of China’s securities market. The research shows that news media promotes the information transmission of the capital market, helps the accounting earnings information integrate into the stock price and improves the pricing efficiency of the capital market.
The Information and Monitoring Role of Media Coverage: Evidence From Earnings Relevance of Listed Firms
Foreign Economics & Management Vol. 40, Issue 07, pp. 99 - 112 (2018) DOI:10.16538/j.cnki.fem.2018.07.008
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Cite this article
Yan Endian, Zeng Qingsheng. The Information and Monitoring Role of Media Coverage: Evidence From Earnings Relevance of Listed Firms[J]. Foreign Economics & Management, 2018, 40(7): 99-112.
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