Abstract
We examine how the tone of news articles about CEOs affects corporate investment at the CEOs' firms. Using unique Chinese media coverage data, we show that positive CEO news articles are significantly associated with increased corporate investment, and the total number of articles does not matter. To establish causality, we use a Granger lead-lag test approach, as well as an instrumental variable approach that uses type of news outlets (state-controlled versus non-state-controlled). Our identification strategies suggest a positive causal effect of CEO news tone on the level of corporate investment. We further identify two underlying economic mechanisms: CEO overconfidence and investor sentiment. We find that the relation between CEO news tone and corporate investment is mainly driven by the overinvestment aspect of investment inefficiency. Our work contributes to prior literature by examining the effects of specific news types (i.e., CEO coverage) and by highlighting a behavioral perspective underlying corporate investment.
| Original language | English |
|---|---|
| Journal | Journal of International Accounting Research |
| Volume | 20 |
| Issue number | 3 |
| Early online date | 1 Sept 2021 |
| DOIs | |
| Publication status | Published - Sept 2021 |
Keywords
- CEO
- news tone
- corporate investment
- CEO overconfidence
- investor sentiment
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