The Effects of Media Framing on Firm Misconduct and its Impact on Stock Illiquidity
In this paper, we attempt to understand the role media framing –tone and readability– plays on investors’ uncertainty and stock illiquidity after firm misconduct is announced by mainstream media. Focusing on S&P500-listed firms, we examine 915 misconduct articles retrieved from the Wall Street Journal between 2011-2015. Our empirical results show that news framing factors can affect stock illiquidity with restrictions. First, it appears that investors rely more on the company's financial fundamentals to make judgments when they first learn about a scandal. However, in the case of follow-up reporting, the tone of the message starts to affect investor’s uncertainty: higher optimistic tone reduces stock illiquidity while higher pessimistic tone increases stock illiquidity. The impact of readability on stock illiquidity also strongly affected by the media scandal exposure. Second, we find that lower readability reduces stock illiquidity when the scandal is released to the public for the first time but follow up scandal reporting which are difficult to read could increase the stock illiquidity. We find that ambiguous language may raise investors’ suspicions of information withholding and increase investors’ uncertainty
Year of publication: |
2022
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Authors: | Li, Li ; Andiappan, Meena |
Publisher: |
[S.l.] : SSRN |
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