IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v91y2024ics1057521923004465.html
   My bibliography  Save this article

Media uncertainty and risk-taking

Author

Listed:
  • Huang, Jiexiang
  • Roberts, Helen
  • Tan, Eric K.M.

Abstract

This study investigates the association between uncertain media tone and risk-taking measures that capture CEO risk-taking incentives, corporate investment, and financial policies. The study predicts that CEOs who attract greater uncertain media tone have more risk-taking incentives. We find a positive association between uncertain media tone and R&D expenditures and financial leverage, and a negative association between uncertain media tone and capital expenditure. Our results are robust to endogeneity concerns and further tests, and demonstrate the importance of uncertainty to executive decision-making. The study documents a potential missing link between uncertain media tone, CEO discretion, and firm risk-taking activities.

Suggested Citation

  • Huang, Jiexiang & Roberts, Helen & Tan, Eric K.M., 2024. "Media uncertainty and risk-taking," International Review of Financial Analysis, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:finana:v:91:y:2024:i:c:s1057521923004465
    DOI: 10.1016/j.irfa.2023.102930
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521923004465
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2023.102930?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gustavo Manso, 2011. "Motivating Innovation," Journal of Finance, American Finance Association, vol. 66(5), pages 1823-1860, October.
    2. Gao, Xin & Xu, Weidong & Li, Donghui & Xing, Lu, 2021. "Media coverage and investment efficiency," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 270-293.
    3. Anwer S. Ahmed & Scott Duellman, 2013. "Managerial Overconfidence and Accounting Conservatism," Journal of Accounting Research, Wiley Blackwell, vol. 51(1), pages 1-30, March.
    4. Peter Iliev, 2010. "The Effect of SOX Section 404: Costs, Earnings Quality, and Stock Prices," Journal of Finance, American Finance Association, vol. 65(3), pages 1163-1196, June.
    5. Patrick Bolton & Hamid Mehran & Joel Shapiro, 2015. "Executive Compensation and Risk Taking," Review of Finance, European Finance Association, vol. 19(6), pages 2139-2181.
    6. James B. Wade & Charles A. O'Reilly & Timothy G. Pollock, 2006. "Overpaid CEOs and Underpaid Managers: Fairness and Executive Compensation," Organization Science, INFORMS, vol. 17(5), pages 527-544, October.
    7. Timothy J. Quigley & Donald C. Hambrick, 2015. "Has the “CEO effect” increased in recent decades? A new explanation for the great rise in America's attention to corporate leaders," Strategic Management Journal, Wiley Blackwell, vol. 36(6), pages 821-830, June.
    8. Zhiguo He & Si Li & Bin Wei & Jianfeng Yu, 2014. "Uncertainty, Risk, and Incentives: Theory and Evidence," Management Science, INFORMS, vol. 60(1), pages 206-226, January.
    9. Liu, Claire & Masulis, Ronald W. & Stanfield, Jared, 2021. "Why CEO option compensation can be a bad option for shareholders: Evidence from major customer relationships," Journal of Financial Economics, Elsevier, vol. 142(1), pages 453-481.
    10. Alexander Dyck & Natalya Volchkova & Luigi Zingales, 2008. "The Corporate Governance Role of the Media: Evidence from Russia," Journal of Finance, American Finance Association, vol. 63(3), pages 1093-1135, June.
    11. Ľuboš Pástor & Veronesi Pietro, 2003. "Stock Valuation and Learning about Profitability," Journal of Finance, American Finance Association, vol. 58(5), pages 1749-1789, October.
    12. Brown, Gregory & Kapadia, Nishad, 2007. "Firm-specific risk and equity market development," Journal of Financial Economics, Elsevier, vol. 84(2), pages 358-388, May.
    13. Bajo, Emanuele & Raimondo, Carlo, 2017. "Media sentiment and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 139-153.
    14. David Hirshleifer & Angie Low & Siew Hong Teoh, 2012. "Are Overconfident CEOs Better Innovators?," Journal of Finance, American Finance Association, vol. 67(4), pages 1457-1498, August.
    15. Lubos PÁstor & Veronesi Pietro, 2003. "Stock Valuation and Learning about Profitability," Journal of Finance, American Finance Association, vol. 58(5), pages 1749-1790, October.
    16. Bernile, Gennaro & Bhagwat, Vineet & Yonker, Scott, 2018. "Board diversity, firm risk, and corporate policies," Journal of Financial Economics, Elsevier, vol. 127(3), pages 588-612.
    17. Michael K. Bednar & Steven Boivie & Nicholas R. Prince, 2013. "Burr Under the Saddle: How Media Coverage Influences Strategic Change," Organization Science, INFORMS, vol. 24(3), pages 910-925, June.
    18. Luigi Zingales, 2000. "In Search of New Foundations," Journal of Finance, American Finance Association, vol. 55(4), pages 1623-1653, August.
    19. Timothy B. Palmer & Robert M. Wiseman, 1999. "Decoupling risk taking from income stream uncertainty: a holistic model of risk," Strategic Management Journal, Wiley Blackwell, vol. 20(11), pages 1037-1062, November.
    20. Low, Angie, 2009. "Managerial risk-taking behavior and equity-based compensation," Journal of Financial Economics, Elsevier, vol. 92(3), pages 470-490, June.
    21. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    22. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    23. Zingales, Luigi & Dyck, Alexander, 2002. "The Corporate Governance Role of the Media," Working Papers 184, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    24. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    25. Alexander Dyck & Luigi Zingales, 2002. "The Corporate Governance Role of the Media," NBER Working Papers 9309, National Bureau of Economic Research, Inc.
    26. Zyglidopoulos, Stelios C. & Georgiadis, Andreas P. & Carroll, Craig E. & Siegel, Donald S., 2012. "Does media attention drive corporate social responsibility?," Journal of Business Research, Elsevier, vol. 65(11), pages 1622-1627.
    27. Frederick Dongchuhl Oh & Kyung Suh Park, 2016. "Corporate governance structure and product market competition," Applied Economics, Taylor & Francis Journals, vol. 48(14), pages 1281-1292, March.
    28. Li, Feng, 2008. "Annual report readability, current earnings, and earnings persistence," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 221-247, August.
    29. Liu, Baixiao & McConnell, John J., 2013. "The role of the media in corporate governance: Do the media influence managers' capital allocation decisions?," Journal of Financial Economics, Elsevier, vol. 110(1), pages 1-17.
    30. Cheng, Yingmei & Liu, Baixiao & McConnell, John J. & Rosenblum, Aaron, 2017. "When is good news bad and vice versa? The Fortune rankings of America's most admired companies," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 378-396.
    31. Croci, Ettore & Petmezas, Dimitris, 2015. "Do risk-taking incentives induce CEOs to invest? Evidence from acquisitions," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 1-23.
    32. Sila, Vathunyoo & Gonzalez, Angelica & Hagendorff, Jens, 2016. "Women on board: Does boardroom gender diversity affect firm risk?," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 26-53.
    33. Li, Xiaoqing & Qiao, Penghua & Zhao, Lin, 2019. "CEO media exposure, political connection and Chinese firms' stock price synchronicity," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 61-75.
    34. William Ocasio, 1997. "Towards An Attention‐Based View Of The Firm," Strategic Management Journal, Wiley Blackwell, vol. 18(S1), pages 187-206, July.
    35. Brandon Julio & Youngsuk Yook, 2012. "Political Uncertainty and Corporate Investment Cycles," Journal of Finance, American Finance Association, vol. 67(1), pages 45-84, February.
    36. Jennifer Francis & Allen H. Huang & Shivaram Rajgopal & Amy Y. Zang, 2008. "CEO Reputation and Earnings Quality," Contemporary Accounting Research, John Wiley & Sons, vol. 25(1), pages 109-147, March.
    37. Liu, Baixiao & McConnell, John J. & Xu, Wei, 2017. "The power of the pen reconsidered: The media, CEO human capital, and corporate governance," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 175-188.
    38. Bhattacharya, Utpal & Hsu, Po-Hsuan & Tian, Xuan & Xu, Yan, 2017. "What Affects Innovation More: Policy or Policy Uncertainty?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(5), pages 1869-1901, October.
    39. René Belderbos & Tony W. Tong & Shubin Wu, 2019. "Multinational investment and the value of growth options: Alignment of incremental strategy to environmental uncertainty," Strategic Management Journal, Wiley Blackwell, vol. 40(1), pages 127-152, January.
    40. Aman, Hiroyuki & Moriyasu, Hiroshi, 2017. "Volatility and public information flows: Evidence from disclosure and media coverage in the Japanese stock market," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 660-676.
    41. Humphery-Jenner, Mark & Lisic, Ling Lei & Nanda, Vikram & Silveri, Sabatino Dino, 2016. "Executive overconfidence and compensation structure," Journal of Financial Economics, Elsevier, vol. 119(3), pages 533-558.
    42. Gregory S. Miller, 2006. "The Press as a Watchdog for Accounting Fraud," Journal of Accounting Research, Wiley Blackwell, vol. 44(5), pages 1001-1033, December.
    43. Core, John E. & Guay, Wayne & Larcker, David F., 2008. "The power of the pen and executive compensation," Journal of Financial Economics, Elsevier, vol. 88(1), pages 1-25, April.
    44. Zhang, Weike & Zhang, Xueyuan & Tian, Xiaoli & Sun, Fengwei, 2021. "Economic policy uncertainty nexus with corporate risk-taking: The role of state ownership and corruption expenditure," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    45. Jiexiang Huang & Helen Roberts & Eric K. M. Tan, 2022. "The media and CEO dominance," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 5-35, March.
    46. Byun, Seong K. & Oh, Jong-Min, 2018. "Local corporate social responsibility, media coverage, and shareholder value," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 68-86.
    47. Dong, Zhiyong & Wang, Cong & Xie, Fei, 2010. "Do executive stock options induce excessive risk taking?," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2518-2529, October.
    48. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2006. "Managerial incentives and risk-taking," Journal of Financial Economics, Elsevier, vol. 79(2), pages 431-468, February.
    49. Rogers, Daniel A., 2002. "Does executive portfolio structure affect risk management? CEO risk-taking incentives and corporate derivatives usage," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 271-295, March.
    50. Jeong†Bon Kim & Liandong Zhang, 2014. "Financial Reporting Opacity and Expected Crash Risk: Evidence from Implied Volatility Smirks," Contemporary Accounting Research, John Wiley & Sons, vol. 31(3), pages 851-875, September.
    51. Raaj K. Sah & Joseph E. Stiglitz, 1991. "The Quality of Managers in Centralized Versus Decentralized Organizations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 289-295.
    52. Serfling, Matthew A., 2014. "CEO age and the riskiness of corporate policies," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 251-273.
    53. Sahaym, Arvin & Treviño, Len J. & Steensma, H. Kevin, 2012. "The influence of managerial discretion, innovation and uncertainty on export intensity: A real options perspective," International Business Review, Elsevier, vol. 21(6), pages 1131-1147.
    54. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
    55. Lily Fang & Joel Peress, 2009. "Media Coverage and the Cross‐section of Stock Returns," Journal of Finance, American Finance Association, vol. 64(5), pages 2023-2052, October.
    56. Stephen H. Archer & LeRoy G. Faerber, 1966. "Firm Size And The Cost Of Externally Secured Equity Capital," Journal of Finance, American Finance Association, vol. 21(1), pages 69-83, March.
    57. Panta, Humnath, 2020. "Does social capital influence corporate risk-taking?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 26(C).
    58. Timothy B. Folta & Jonathan P. O'Brien, 2004. "Entry in the presence of dueling options," Strategic Management Journal, Wiley Blackwell, vol. 25(2), pages 121-138, February.
    59. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
    60. Zeki Simsek, 2007. "CEO tenure and organizational performance: an intervening model," Strategic Management Journal, Wiley Blackwell, vol. 28(6), pages 653-662, June.
    61. Bhagat, Sanjai & Bolton, Brian & Lu, Jun, 2015. "Size, leverage, and risk-taking of financial institutions," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 520-537.
    62. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    63. Bargeron, Leonce L. & Lehn, Kenneth M. & Zutter, Chad J., 2010. "Sarbanes-Oxley and corporate risk-taking," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 34-52, February.
    64. Bhagat, Sanjai & Welch, Ivo, 1995. "Corporate research & development investments international comparisons," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 443-470, April.
    65. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
    66. Geske, Robert & Subrahmanyam, Avanidhar & Zhou, Yi, 2016. "Capital structure effects on the prices of equity call options," Journal of Financial Economics, Elsevier, vol. 121(2), pages 231-253.
    67. Cassell, Cory A. & Huang, Shawn X. & Manuel Sanchez, Juan & Stuart, Michael D., 2012. "Seeking safety: The relation between CEO inside debt holdings and the riskiness of firm investment and financial policies," Journal of Financial Economics, Elsevier, vol. 103(3), pages 588-610.
    68. Glover, Brent & Levine, Oliver, 2015. "Uncertainty, investment, and managerial incentives," Journal of Monetary Economics, Elsevier, vol. 69(C), pages 121-137.
    69. Ulrike Malmendier & Geoffrey Tate & Jon Yan, 2011. "Overconfidence and Early‐Life Experiences: The Effect of Managerial Traits on Corporate Financial Policies," Journal of Finance, American Finance Association, vol. 66(5), pages 1687-1733, October.
    70. Kini, Omesh & Williams, Ryan, 2012. "Tournament incentives, firm risk, and corporate policies," Journal of Financial Economics, Elsevier, vol. 103(2), pages 350-376.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jiexiang Huang & Helen Roberts & Eric K. M. Tan, 2022. "The media and CEO dominance," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 5-35, March.
    2. Ahmed, Mohamed Shaker & Kumar, Satish & Gupta, Prashant & Bamel, Nisha, 2024. "CEO media coverage and cash holdings," International Review of Financial Analysis, Elsevier, vol. 91(C).
    3. Cassell, Cory A. & Huang, Shawn X. & Manuel Sanchez, Juan & Stuart, Michael D., 2012. "Seeking safety: The relation between CEO inside debt holdings and the riskiness of firm investment and financial policies," Journal of Financial Economics, Elsevier, vol. 103(3), pages 588-610.
    4. Sadok El Ghoul & Omrane Guedhami & Robert Nash & Ajay Patel, 2019. "New Evidence on the Role of the Media in Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 154(4), pages 1051-1079, February.
    5. Han, Feng & Qin, Qi & Peabody, S. Drew, 2022. "Does incentive conflict between CEOs and CFOs benefit firms? Implications for corporate decision-making," Research in International Business and Finance, Elsevier, vol. 63(C).
    6. Mekhaimer, Mohamed & Abakah, Alex Annan & Ibrahim, Awad & Hussainey, Khaled, 2022. "Subordinate executives' horizon and firm policies," Journal of Corporate Finance, Elsevier, vol. 74(C).
    7. Siddiqui, Sayla & Shams, Syed, 2023. "Media coverage and patent trolls: A study on US high-tech firms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    8. Gao, Xin & Xu, Weidong & Li, Donghui, 2022. "Media coverage and corporate risk-taking: International evidence," Journal of Multinational Financial Management, Elsevier, vol. 65(C).
    9. Zhang, Zhihong & Wang, Pin & Xu, Huichao, 2020. "Executives’ preference for integrity and product quality: Evidence from the Chinese food industry," Economic Modelling, Elsevier, vol. 90(C), pages 374-385.
    10. Çolak, Gönül & Korkeamäki, Timo, 2021. "CEO mobility and corporate policy risk," Journal of Corporate Finance, Elsevier, vol. 69(C).
    11. Lili Dai & Rui Shen & Bohui Zhang, 2021. "Does the media spotlight burn or spur innovation?," Review of Accounting Studies, Springer, vol. 26(1), pages 343-390, March.
    12. Yang, Shuai & Wu, Chao, 2021. "Do Chinese managers listen to the media?: Evidence from mergers and acquisitions," Research in International Business and Finance, Elsevier, vol. 58(C).
    13. Xu, Yingying & Lien, Donald, 2022. "Which affects stock performances more, words or deeds of the key person?," International Review of Financial Analysis, Elsevier, vol. 84(C).
    14. Niklas Kreilkamp & Sascha Matanovic & Maximilian Schmidt & Arnt Wöhrmann, 2023. "How executive incentive design affects risk-taking: a literature review," Review of Managerial Science, Springer, vol. 17(7), pages 2349-2374, October.
    15. Liu, Qigui & Tang, Jinghua & Li, Donghui & Xing, Lu, 2023. "The role of bad-news coverage and media environments in crash risk around the world," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 488-509.
    16. Fan, Yaoyao & Boateng, Agyenim & Ly, Kim Cuong & Jiang, Yuxiang, 2021. "Are bonds blind? Board-CEO social networks and firm risk," Journal of Corporate Finance, Elsevier, vol. 68(C).
    17. Zhou, Bing & Li, Yu-meng & Sun, Fang-cheng & Zhou, Zhong-guo, 2021. "Executive compensation incentives, risk level and corporate innovation," Emerging Markets Review, Elsevier, vol. 47(C).
    18. Li, Xuelian & Dong, Liang & Kot, Hung Wan & Liu, Ming, 2024. "Regulatory investigations, media coverage, and audit opinions," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).
    19. Abdoh, Hussein, 2023. "Rivals risk-taking incentives and firm corporate policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 106-123.
    20. Duong, Kiet Tuan & Banti, Chiara & Instefjord, Norvald, 2021. "Managerial conservatism and corporate policies," Journal of Corporate Finance, Elsevier, vol. 68(C).

    More about this item

    Keywords

    Uncertain media tone; CEO risk-taking incentives; Corporate policies; Investment and financial risk;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:91:y:2024:i:c:s1057521923004465. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.