The Effects of Managerss Strategic Responses to Media-Disclosed Negative Information on Investorss Judgments

Abstract

Using two experiments, we investigate the effects of management's strategic responses to negative media-mentions. In our first study, we examine the timing of management’s disclosure compared to the timing of the negative media-mention. We find that when management issues their disclosure after the media-mention compared to before the media-mention, investors process the media’s negative framing less deeply, which leads to less negative investor judgments. In our second study, we examine the effects of management’s response focus. We find that when management’s response has the same focus (industry focus vs. company focus) as the media-mention’s focus, investors process the management response more deeply, and investor judgments are more positive compared to when the focus of management’s response differs from the media mention’s focus. We also provide evidence that our results can be explained by insights from cue priming theory. Our study contributes to practice by (1) documenting that getting out ahead of a negative media-mention can be more harmful than responding after the media and (2) presenting a “focus-matched” response as a way to increase the effectiveness of a company’s response to negative news disseminated by the media.