Do Media Message Receivers Asymmetrically React to Non-strategic and Strategic Media Coverage? Evidence from Hong Kong

This study decomposes media coverage into a non-strategic (random news) component and a strategic component backed by investor relations (IR) activities. Conceptually, media message receivers, including analysts and investors, asymmetrically react to non-strategic and strategic media coverage if their reactions to strategic media coverage are biased. Therefore, their reactions to non-strategic media coverage provide a benchmark of unbiased actions for empirically identifying the upward bias, if any, in their reactions to strategic media coverage. Using a sample of Hong Kong firms that provides unique data on IR activities, this study finds that analyst following and forecast error are unbiased in response to strategic media coverage. However, investors’ actions are biased upward in response to strategic media coverage, whose positive impact is over 50% stronger than that of non-strategic media coverage on stock performance and institutional ownership. Moreover, investors heavily discount the strategic media coverage of firms with high information asymmetry.