The Role of Media on CEO Power and Firm Performance

Abstract

This study investigates the role of media tone on CEO power and firm value. Using CEO pay slice (CPS) as a measure of CEO power, we find that negative media tone is associated with a reduction in the change in CEO power. We also find that firm performance can be explained by the interaction effects of positive media tone and the change in CEO power. Similarly, we report that media favourability together with changes in CEO power is positively related to firm performance. Consistent with the theoretical predictions, we find a positive association between negative tone and the CEO risk-taking incentives, and a negative association between media favourability and the CEO risk-taking incentives. The evidence suggests that media tone plays a role in corporate governance through the dissemination of news.