Information Asymmetry and Investor Reaction to Corporate Crisis: Media Reputation as a Stock Market Signal

ABSTRACT Information asymmetry between corporate management and investors creates a context in which corporate reputation conveyed in the media may serve as a valid signal of firm quality to investors in times of corporate crisis. Results confirmed our hypothesis that corporate media reputation was positively correlated with postcrisis stock return. Furthermore, the positive effect of media reputation of a firm on stock market response to the crisis was enhanced by media visibility. Our findings supported a previously unexplored view of the media as information intermediaries in signaling and suggested that a favorable media reputation as an important signal of firm quality leads to high abnormal returns in times of corporate crisis.