Stock pledge and media slant: evidence from China

Abstract

ABSTRACT This paper explores the relationship between stock pledges and media slants. Using data from China, we find that firms with controlling shareholders that start to pledge shares or increase shares pledging for loans are covered with more positive media tones. The association is more prominent when firms with higher margin call pressure, closer relationships with media, more individual investor holdings, and less analyst coverage. We further investigate the underlying channels through which stock pledges may affect media slant. Our results show that stock-pledging firms promote media slants by releasing positive news in pre-announcements and increasing advertising expenditure. We also find that the optimistic media slant of pledging firms results from increased favorable media reports instead of reducing negative information. Moreover, positive media slants will lead to a higher excess stock return of pledging firms. Compared with negative news, positive media coverage is more likely to affect pledging firms’ stock returns. Our findings prove that share-pledging firms may engage in media management. We also provide evidence for the existence of media bias in emerging markets.