The Role of Media in Regulatory Oversight: Evidence From Comment Letters

Abstract

This study examines how media coverage impacts regulatory oversight of publicly listed firms. We find that Chinese firms with greater media attention, particularly those with negative media coverage, are more likely to receive increased regulatory oversight, as indicated by comment letters issued by stock exchanges. The main effects remain consistent after we address the endogeneity issue and under a series of robustness tests. Media oversight not only complements formal regulatory governance, but also substitutes for other non-government governance mechanisms, such as independent auditors' reviews and institutional investors' monitoring. Through an event study, we find that media coverage accelerates regulatory interventions, particularly in the short term. We also show that the influence of media coverage on regulatory oversight is less pronounced among non-state-owned enterprises (non-SOEs) and smaller and growth firms. Our results support the “watchdog” role of the media even in less open media environments and suggest a positive causal effect of media coverage on regulatory efficiency.