The Impact of Media Sentiment on Firm Risk, Corporate Investment and Financial Policies

This study investigates the association between media sentiment and a comprehensive set of corporate decision making measures that capture firm, corporate investment, and financial policy risk. This study predicts that CEOs who achieve greater media coverage are more risk-seeking. We find a positive association between media sentiment and the volatility of future firm stock returns, research and development expenditures and cash holdings. CEOs are more overconfident when estimating returns and risk when media sentiment is strong and positive. CEOs are more risk-seeking when sentiment is negative in an attempt to salvage firm reputation and increase personal wealth. Liquidity is used to hedge risk when firms and CEOs face increased media coverage. Our findings support the role of media sentiment as an external mechanism monitoring firm risk and policies.