PurposeThe purpose of this study is to assess the differential impact on the stock market of statements made by and information about directors and companies who are politically connected, compared to directors and companies with no political connections. The authors also analyze the role played by state-owned enterprises (SOEs), which the authors have identified as politically connected companies because most board members are appointed by political authorities. Furthermore, the boundaries and institutional environment within which SOEs operate are likely to be different from private companies.Design/methodology/approachThe sample is composed of over 60,000 news articles on the boards of directors (both with political roles and without political roles) of listed Italian companies in the period 1998–2013. On that sample the authors run a regression analysis under the signaling theory approach.FindingsResults suggest a positive effect on market capitalization associated with individual political connections. This effect decreases when the political connection extends to the whole enterprise although it still remains, while a negative effect is associated with state-controlled enterprises. The impact of negative news content does not change depending on whether a board member has a political role or not.Originality/valuePrevious research has demonstrated a causal link between stock prices and their reaction to corporate news (Engelberg and Parsons, 2011; Peress, 2014), but no studies have quantified the different reactions that occur when the news mentions politically connected companies and individuals who hold a political role.
This study aims to investigate the unsettled issue of the relationship between CEO duality and a firm’s value through the perspective of investors’ reaction to news which mention apical directors with a single role and Board Chair CEOs. With a unique and hand-collected database of 60,805 newspaper articles, text-analysis, event-study and regression analysis methodologies were applied to capture news sentiment and study the direction and the magnitude of the stock market reaction. Results reveal that news mentioning Board Chair CEOs are negatively processed by investors, revealing a negative perception by investors about CEO duality. The study provides empirical support for the agency theory, in contrast to the stewardship theory, in the interpretation of CEO duality. It also proposes the methodology of systematically quantifying language to explore corporate governance issues and their link with financial markets.
Mass media are known to be powerful in directing the public's attention towards specific issues, socially shaping individual's opinions and investors' behaviour in financial markets. Applying textual analysis, event study, and regression analysis methodologies on a large hand‐collected database of newspapers articles mentioning Italian listed companies' CEOs, chairmen, and vice‐chairmen, over a time span of 16 years, we observe how the content of newspaper articles, the visibility of directors, and the mention by the press of celebrity and not famous directors influence stock market prices. Results reveal that celebrity status is not necessarily associated with positive emotional responses: Besides the impact of the content of the news, visibility and celebrity are rather associated with a negative impact on investors' opinion; on the other hand, scarce visibility does not drive any additional effect on stock market prices.
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