Bad News Bearers: The Negative Tilt of the Financial Press

Abstract

We show that increased media coverage strongly predicts lower subsequently announced firm fundamentals, earnings surprises, and higher likelihoods of bankruptcy, dividend cuts, and delistings. Additionally, we find that media articles often convey negative sentiment, with investor attention increasing around the publication of negative articles, suggesting that the media tilts coverage toward negative events to drive readership. We also show that media coverage initially impedes price discovery for negative news through an attention effect and that investors respond sluggishly to the negative signal embedded in media coverage decisions, leading to a gradual incorporation of the negative information into prices and return predictability. This paper was accepted by David Simchi-Levi, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00580 .