Trade war, media tone and market reaction asymmetry

Purpose - This study investigates the impacts of Chinese media reporting strategy (media tone) on the market performance of US-trade-intensive firms vs non-US-trade-intensive firms and the effect of media tone on the occurrence of good and bad news. Design/methodology/approach - News texts were retrieved from nine major financial/economic media outlets. Lexical analysis and event study have been adopted to examine the impact of different types of news during the US–China trade frictions on Chinese firms. Findings - The results show that US-trade-intensive firms vs non-US-trade-intensive firms exhibited different reactions to media coverage. US-trade-intensive firms care more about the governmental attitudes toward the trade war and potential policy supports implied in the official media reports than non-US-trade-intensive firms do. The return-chasing behavior hypothesis is supported by US-trade-intensive investors, and this effect is further enhanced when multiple releases occur on the same day. A higher media tone combined with intensified media releases significantly increases the volatilities of both US-trade-intensive and non-US-trade-intensive firms. Practical implications - Information provided by this study helps the regulatory authorities to formulate measures to enhance investor confidence and better optimize resource allocation. Originality/value - This study investigates the asymmetric effect of media tone on US-trade-intensive firms vs non-US-trade-intensive firms, which has not been examined, to the best of the authors’ knowledge, in the existing literature.