The Effects of Matching the Management Response Focus to Negative Media Coverage Focus on Investors’ Judgments

• In Event: Investor Judgement and Decision Making

Abstract

Recent accounting research finds that responding to criticism and negative news from credible third parties can mitigate potential unfavorable investor reactions. However, it is not clear what features of management responses can moderate investor reaction to the negative news. In this study, we investigate how management’s response “focus” interacts with negative media coverage’s focus to affect investor judgments. By using an experiment, we show that investors' judgments are more favorable when there is a match between the focus of the news article and the management response. We also find that investors rely more on the management response when management response has a focus similar to the focus found in the previously observed media article. The study contributes to the management response literature and to practice by presenting a “focus-matched” response as a way to increase the effectiveness of a company’s response to negative news disseminated by the media. Theoretically, we extend the psychology literature by showing that article focus can be an important cue and when an individual observes information from different sources with similar focus, fluency of the processing increases for the subsequently observed information.

Authors

• Deni Cikurel, University of Illinois-Urbana-Champaign

• Kirsten Fanning, University of Illinois-Urbana-Champaign

• Kevin E. Jackson, University of Illinois-Urbana-Champaign