Media pressure and corporate innovation
(2.School of Management, Huazhong University of Science and Technology 430072)
【Abstract】The role of the media as an external governance mechanism in the capital market has been verified by empirical evidence and is increasingly given public attention. However, similar to active stock markets and close analyst followings, negative media reports may exert pressure on firms and their management, resulting in the avoidance of risky but valuable innovation projects (“market pressure hypothesis”). This tendency is more apparent when the media industry as a whole is crazy for sensational news. The current media ecology in China is rightly featured by the epidemic, scandalized, sentimentalized, tabloid news and even false news (Xiong et al., 2011), which is greatly alien to the institutional environment required by “mass innovation” and the “spirit of the craftsman” advocated by the central government. Therefore, exploring the effect of media pressure on corporate innovation under China’s context should generate more implications for theoretical research and reality. By measuring media pressure and corporate innovation by the number of negative media reports, we test this hypothesis. Original data on media reports are obtained from China Infobank and data on patents are manually collected from the website of the National Intellectual Property Administration, PRC. The results show that the number of negative media reports is significantly and negatively associated with corporate innovation, which is consistent with the market pressure hypothesis. This remains unchanged after controlling the bias induced by endogeneity and conducting a series of robustness tests. Furthermore, after differentiating media reports by content, source, severity, and depth, we find that only accounting-related negative media reports are negatively related to corporate innovation with statistical significance, supporting that short-term performance pressure impedes corporate innovation; more authoritative and severe negative media reports are more likely to reduce corporate innovation, suggesting that more negative reports lead to more negative effects; and deeper negative media reports are more likely to inhibit corporate innovation, whereas those from business journals, which can restore the whole events, promote innovation, showing the importance of responsible, objective, and comprehensive media reporting. Finally, the numbers of all media and non-negative media reports are positively related to corporate innovation. This paper makes three important contributions. First, it verifies the market pressure hypothesis using corporate innovation as an example in China’s current media ecology. The literature supports the corporate governance role of the media (Dyck et al, 2008; Li and Shen, 2010). However, the potential negative effect of media pressure on firms has been overlooked. Second, it broadens the literature by contributing a more comprehensive and deep understanding of the role of media in the capital market. Different from Dai et al. (2015), we find more profound and interesting results after manually collecting all media reports on firms and then differentiating their nature. The number of negative media reports is negatively related to corporate innovation, whereas the number of total and non-negative media reports demonstrates the opposite, challenging the findings of Dai et al. (2015). Finally, this paper gives some enlightening findings. For example, negative media reports without depth curb corporate innovation, whereas negative reports that can restore events suggest that only responsible, objective, and deep media reports can function as good corporate governance mechanisms. This study also has realistic implications. Our results do not necessarily indicate that the capital market does not need monitoring or negative reporting from the media. On the contrary, it detects a lot of corporate fraud (Miller, 2006). We encourage the media to restore events based on careful verification and thorough investigation with authenticity and objectivity in mind, rather than releasing news solely to attract audiences. Therefore, it is compelling for the government to develop a sound media ecology by strengthening self-regulation for the industry, improving the litigation and indemnity system, and increasing punishments for illegal media and actions.
【Keywords】 media; negative media reports; enterprise innovation; market pressure; risk-taking;
. ① Negative reports are more likely to attract the attention of the audience and produce sensational effects, thus exerting greater impact and pressure on the companies and managers involved.
. ② This does not mean that all the current negative reports in China are untruthful and irresponsible rumors. The authors want to point out that the current media ecology will amplify the pressure effect of negative media reports on the whole.
. ① Since PSM method can only alleviate the influence of missing controlled variables (Lennox et al, .2012), another first-order difference model is adopted for testing. The main test results still exist. Due to space limitation, the report is not available. Interested readers can request it by contacting the authors.
. ① The four major securities newspapers are China Securities Journal, Shanghai Securities News, Securities Times and Securities Daily. The four major authoritative business newspapers are 21st Century Business Herald, The Economic Observer, China Business Journal and China Business News Daily.
. ① Due to space limitation, the test results are not listed, and interested readers can request them by contacting the authors.
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