The Effects of Aligning Management’s Response Emphasis with Negative Media Coverage’s Lede on Investors’ Judgments

ABSTRACT

Accounting research has shown that management responses to negative news from third parties can mitigate unfavorable investor reactions. The features of management responses that influence investor judgments, however, are unclear. This study investigates how the emphasis of management’s response interacts with the lede of negative media coverage to shape investor perceptions. Using a between-subjects experiment, we find that, when there is alignment between the media lede and management’s response emphasis, investor judgments become more favorable. The alignment enhances the persuasiveness of management’s response, leading investors to believe that the issue is unlikely to have a negative impact on future profitability. Our findings contribute to the literature on management responses by highlighting the effectiveness of aligning a company’s response with negative media coverage. In addition, we extend the psychology literature by demonstrating that the media lede is a key element to which management can tailor its response, thereby influencing investor judgments.

Data Availability: Data are available from the authors upon request.

JEL Classifications: M41; G11; C91.