Abstract
We examine the effect of media coverage on firm-level investment efficiency. We find that media coverage reduces under-investment but increases over-investment. The negative effect of media coverage on under-investment is more pronounced in firms affected by greater information asymmetry and poorer corporate governance. The positive effect of media coverage on over-investment is driven by media-induced CEO overconfidence. Additional results show that both investment- and non-investment-related news coverage decrease under-investment, while non-investment-related news coverage is more influential in increasing over-investment. In general, higher news optimism is associated with less under-investment but more over-investment. Moreover, media coverage affects investment efficiency through its information dissemination rather than information creation function. Collectively, our results suggest that firms’ media visibility promotes more over-investment than under-investment.
| Original language | English |
|---|---|
| Pages (from-to) | 270-293 |
| Number of pages | 24 |
| Journal | Journal of Empirical Finance |
| Volume | 63 |
| Early online date | 9 Jul 2021 |
| DOIs | |
| Publication status | Published - 30 Sept 2021 |
Funding
Acknowledgments: Weidong Xu acknowledges funding from the National Natural Science Foundation of China (Grant No. 71771197 and No. 71821002 ). Donghui Li would like to thank the National Natural Science Foundation of China for financial support (Grant No. 71873058 ). We thank Jiaqing Ding for excellent research assistance.
Keywords
- CEO overconfidence
- Corporate governance
- Information asymmetry
- Investment efficiency
- Media coverage
ASJC Scopus subject areas
- Finance
- Economics and Econometrics
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