Accounting Seminar（2014-01）

Topic：The Effect of Politician Career Concerns on Media Slant and Market Return: Evidence from China

Speaker: Weining Zhang, Cheung Kong Graduate school of Business

Discussant:Zhengfei Lu Heng Yue , Peking University

Time:: Friday,07 March,09:30-11:00am

Location:Room 217, Guanghua Building 2

Organizer:Department of Accounting, MPAcc GSM, PKU

Abstract：

Using city official data in China, we find that government officials are more likely to be promoted to higher positions if the listed State-Owned-Enterprises (SOEs) under their control are covered by less negative media news toward the end of their current terms. This is consistent with a career concern that provides local government officials with strong incentives to suppress negative media news of companies under their control as they approach the end of their current terms. Such media distortion significantly worsens the capital market’s information environment. Furthermore, the negative externality from official career concerns cannot be completely offset by other information channels, and therefore it can have a sizable impact on stock prices. To demonstrate the distortion on stock prices, we show that a trading strategy longing firms with less negative media slant under outgoing officials, and shorting firms with more negative media slant under incoming officials, can generate a 12% per annum abnormal return. In addition, we find that officials with stronger career concerns are impacted by negative news to a greater extent and are in turn more likely to suppress it. These results are consistent with the notion that politician career concerns are an important determinant of the capital market information environment in China.

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