Can negative media coverage be positive? When negative news coverage improves firm financial performance

Abstract

Purpose

Negative media coverage has important impacts on firm financial performance, but existing studies have inconsistent views of this relationship and lack a unified theoretical framework to explain how such impacts arise. This study aims to bridge this gap in the literature.

Design/methodology/approach

This study uses two sets of data encompassing publicly listed companies in Shanghai and Shenzhen stock exchanges from 2013 to 2019, which are covered by the China Stock Market and Accounting Research Database.

Findings

This study finds that the number of negative news coverages has an inverted U-shaped relationship with firm financial performance; this relationship is weakened by the proportion of shares held by institutional investors and strengthened by advertising intensity.

Practical implications

This study suggests that corporate executives should be aware of the potential value of a limited amount of negative news coverage and react with tolerance and caution when their companies encounter it.

Originality/value

This study uses two different routes provided in the elaboration likelihood model theory to fully explain the processes underlying changes in investors’ attitudes toward firms experiencing negative media coverage.

Citation

Dong, X., Wen, X., Wang, K. and Cai, C. (2022), "Can negative media coverage be positive? When negative news coverage improves firm financial performance", Journal of Business & Industrial Marketing, Vol. 37 No. 6, pp. 1338-1355. https://doi.org/10.1108/JBIM-01-2021-0038