Companies Favored By The Media:Fortune Or Misfortune?

In the early days, people’s opinion on media was that it just a tool to disseminate informations and entertain the public. At that time, scholars such as Jensen et al.(1979) also suspected that media can have an impact on the capital market. With the development of society and the popularity of media, people are increasingly concerned about the role that media played in the capital markets. Many research findings have proved that media plays an active role in corporate governance through reputation mechanism. In particular, the negative media coverage can combate illegal behavior of listed companies, fully demonstrated the power of the "fourth right". For positive media coverage, on the one hand, it can motivate company executives to better perform their duties through reputation constraints mechanism, resulting in playing an active governance effect. On the other hand, praises from the media may increase executives’ vanity and they will manipulate positive earnings management to meet market expectations. For exemple, in2009, the research of American scholar Malmendier et al. has proved that "superstar CEOs" selected by national medias will increasingly manipulate positive earnings management after awards. But in China, What role does positive media coverage play? In the background of earnings management widespread existence in listed companies, this study explores features on earnings management of companies favored by the media, which have more positive media coverage.This paper selects the2004-2012A-share listed companies as samples, collecting media reports data manually and selecting top150companies that have more positive media coverage by text analysis, which refered as "companies favored by the media". Then, the author uses the modified Jones model to measure earnings management. Based on this, we exam the feature of "companies favored by the media" on earnings management behavior after three years of media reports.Regression results show that there is a positive relationship between the positive mdia coverage and earnings management in the first year and second year after media reports. It indicates that because of the media hype,"companies favored by the media" will manipulate positive earnings management to maintain their usual good image. This relationship is more significant in non-state-owned enterprises and companies that CEOs are more powerful. It also indicates that media has an impact on earnings management only in two years after reports. These conclusions prove that media hype is harmful to firm value.