Watchdog or Colluder? The Role of the Media in Private In-house Meetings

Abstract

Many extant studies argue that the media have an effective governance role in disciplining firms’ opportunistic behaviors. However, the agenda-setting theory in communication research suggests the possibility of collusive behavior between the media and its stakeholders. To contribute to the corporate governance literature, we use private in-house meetings—the opaque communications between management and outside investors—as our empirical context to examine the specific governance role played by the media in insider trading. We investigate the monitoring effects of media in disciplining insider trading using a special large dataset from private in-house meetings. In particular, we investigate whether the media agenda (measured by the total number of news counts about the focal firm within a period around the firm hosting its private in-house meeting) is associated with higher or lower insider trading profitability. We found that the media coverage tends to be more positively related to insider trading profitability, suggesting the possibility of colluding effects between corporate and media agendas. We also investigate the moderating effects of media orientation, media tone, and media content source. Empirical results suggest that policy-oriented media coverage and media coverage from original sources weaken the association between media coverage and insider trading profitability, while negative tone media coverage enhances the association.