The tone and readability of the media during the financial crisis: Evidence from pre-IPO media coverage

Abstract

Prior research suggests that in an IPO market, where investors have little knowledge of IPO companies, the media plays a vital role in facilitating or inhibiting the process of impression formation. This paper examines the tone and readability of the media for IPO companies during the global financial crisis to understand the role of the media when the economic environment is uncertain. Our findings suggest that the tone but not the readability of the media varies under different market conditions. In particular, we find that the tone in the media is more favourable in good times, less so in bad. We suggest that the media is aware of the fact that positive (negative) news articles are more (less) likely to increase retail demand for a stock and, thus, try to hedge their bets during the crisis period and do not want to create unnecessary attention in an uncertain environment.