Corporate accidents, media coverage, and stock market responses

Managing noise in signalling effectiveness: an empirical test of listed companies in China

Purpose

Signalling theory suggests how “strong” or “weak” the signal quality detected by a receiver (defined as signalling strength) is distorted by noisy factors (defined as noise). Although corporate cooperation signals are known to lead to receiver reaction, the effects of distortion factors on signal credibility are generally unexplored in signalling process. The paper aims to discuss this issue.

Design/methodology/approach

After analysing 264 contract announcements in 2013–2015 that befall publicly listed firms in China, the authors explore the signalling impact of contract value. the authors also incorporate the signalling noises, namely, signalling environment, external referents and other signallers, into the contracting context and investigate their effects on distorting the relationship between signal strength and receiver reaction.

Findings

Results indicate that firms’ contract-signing announcement conveys an effective signal to investors: the larger the contract scale is, the more investor reaction the firms experience. The signalling effects of contract scale on investor reaction are moderated by the three distorting factors.

Originality/value

The findings contribute to the signalling theory literature on the effects of signalling noise on receivers’ perception of signal observability.

The quicker, the better? The antecedents and consequences of response timing strategy in the aftermath of a corporate crisis

Purpose

The conclusions on the importance of corporate response timing to a crisis have remained inconsistent. Some studies suggest that active response may reduce negative impacts, whereas managers argue that issuing official response frustrates stakeholders and thus decreases the firm value. The purpose of this paper is to investigate the role of external media in the response timing strategy and the consequent stock market reaction.

Design/methodology/approach

Based on 130 corporate crises that befell publicly listed firms in China from 2007 to 2014, this paper uses the Baidu News Search Engine and Chinese Lexical Analysis System to construct the variables of the media characteristics. A structural equation model is established to test the hypotheses.

Findings

The results of this paper suggest that media coverage drives response timing after a crisis. Although an official response is a burden for firms, the timing strategy has multidimensional benefits including effectively alleviating negative effects (defined as buffering effects) and repairing the market (defined as restoring effects). Moreover, the buffering effects of response timing are stronger when completeness of response is low.

Originality/value

This study mainly contributes to crisis communication literature by introducing the role of media in prompting managers to make timing decisions. The findings of this study provide empirical support for the importance of timing response strategy.

Does R&D create additional business value through IT?

Purpose

R&D indicates absorptive capacity, which may affect IT payoff. The purpose of this paper is to examine how R&D investment affects the relation between IT investment and firm performance and under what circumstances R&D intensity is more beneficial to IT returns. Such study has been lacking in R&D research and IT payoff literature.

Design/methodology/approach

A conceptual model for linking IT investment, R&D investment, environmental dynamism and firm performance was developed and tested by data collected from Chinese listed firms from 2007 to 2013, using fixed effects regression model.

Findings

The results show positive moderating effects of firm R&D investment and government R&D subsidies on the relation between IT investment and firm performance. Furthermore, the impact of firm R&D investment on IT payoff is stronger for firms in more dynamic environments. The findings suggest that R&D investment creates additional business value through interactions with IT, and complementarities between R&D and IT, as manifested in their interaction effect on firm performance vary across industry sectors.

Research limitations/implications

This paper indicates the importance of complementarities between R&D and IT, which should prove helpful to researchers and practitioners engaged in Chinese business.

Originality/value

This paper presents one of the first attempts at examining the moderating effect of R&D investment on the relation between IT investment and firm performance. Especially this study helps to understand under what circumstances R&D investment is more or less likely to be beneficial to IT returns.

Twin-objective supply chain collaboration to cope with rare but high impact disruptions whilst improving performance

Purpose

Rare but high impact (R-HI) disruptions, which are caused by legal changes, socio-technical accidents, or natural disasters, are becoming more frequent and have strong short-term and long-term impacts on performance. Meanwhile, the short-term perspective of managers leads to adoption of mitigation strategies with lower investments and immediate performance improvement. The purpose of this paper is to provide insights on supply chain collaboration (SCC) to establish so-called twin-objective strategy to help both risk mitigation (through moderation effects) and performance improvement (through a direct positive impact). Moreover, power position will be considered as the control variable.

Design/methodology/approach

A cross-sectional approach was adopted with primary data collected through a survey in China. Data were analyzed using structural equation modeling with partial least squares estimations. A sub-group model analysis was applied to test the effect of the control variable.

Findings

The findings verify that SCC has both a direct positive impact on performance and moderation effects on the relationships between sources of R-HI disruptions and performance. The results of sub-group model analysis illustrate that both powerful and weak focal firms benefit from SCC, but in different ways.

Originality/value

The study shows that the allocation of gains from collaborative advantage should be added to the theory-building of relational view. Meanwhile, the research extends the focal firm’s context to its supply chain’s context so that classic contingency theory can be extended to adequately explain supply chain management phenomena.

Does the reputation mechanism of media coverage affect earnings management?

Purpose

This paper aims to investigate the relationship between earnings management and media reports, assess the roles played by the media in determining the reputation mechanism and examine whether the media has an influence on executives’ behavior in the case of earnings management.

Design/methodology/approach

This paper uses Chinese A-share listed firms from the period 2008 to 2012 to test the research questions using regression analyses.

Findings

Although the Chinese Stock Markets are still immature compared to those of developed countries, the media seems to play a role in affecting executives’ decisions about dabbling in earnings management. Specifically, firms receiving more media attention are more likely to undertake earnings management. Furthermore, negative media reports result in even higher levels of earnings management activities, indicating that managers tend to use earnings management to achieve earnings goals to reduce or relieve the pressure they feel from the media and to remedy any reputation loss. Moreover, the authors have found that firms whose CEOs have higher reputations are more likely to manage earnings and they are more likely to be affected by negative media reports. Similar results were found for state-owned enterprises (SOEs).

Originality/value

This study analyzes how the level and tone of media coverage affect earnings management rather than just assessing the overall effect of media coverage on earnings management. This paper verifies that the reputation mechanism of the media works in China, but it leads to different results than those experienced in developed countries. Reputational benefits have been introduced into the equation for measuring the governance effect of the media to derive a more in-depth analysis of the reputation mechanism. This paper is among the first to link news coverage and state ownership with earnings management.

Business strategy, market competition and earnings management

Purpose

– The purpose of this study is to explore the relationships among business strategy, market competition and earnings management.

Design/methodology/approach

– This paper uses 2,037 Chinese A-share listed firms from 2010 to 2012 to test the research questions using regression analyses.

Findings

– The firms that follow cost leadership strategy (cost leaders) are more likely to have a higher level of real earnings management. The firms that follow differentiation strategy (differentiators) are less likely to use real earnings management. For cost leaders, the market competition further increases the level of real earnings management, whereas the level of earnings management of differentiators is not significantly impacted by the market competition.

Practical implications

– Results of this study indicate the feasibility of differentiation strategy in China and suggest that management should be encouraged to use such a strategy or to use a hybrid strategy to achieve its operational and financial goals.

Originality/value

– The study contributes to the research of earning management by providing evidence on that business strategy has significant impacts on earnings management. It also shows an incremental influence of market competition on earnings management through its impacts on business strategy.