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In traditional finance, the efficient market hypothesis (EMH) states that a stock price is always driven by “unemotional” investors to equal the firm’s rational present value of expected future cash flows (Fama 1965). Specifically, investors are constantly updating their beliefs about the directions of stock markets as they receive new information about relevant firms, although they typically disagree on these directions. This disagreement among competing market participants leads to discrepancies between the actual price and the intrinsic value of a stock, causing the stock price to fluctuate around a stock’s intrinsic value. Cutler et al. (1988) found that macroeconomic news could explain approximately one-third of the return variance in the stock market. Mitchell and Mulherin (1994) found that the number of news announcements reported daily by Dow Jones & Company was directly related to the aggregate measures of stock market activity, including trading volume and market returns.
In addition, recent behavioral finance states that the abnormal fluctuations of stocks are caused by the emotional impulses of irrational investors (De Long et al. 1990; Shleifer and Vishny 1997). In general, investors may be affected by peer opinions from social media or professional attitudes from news articles. Tetlock (2007, 2008) analyzed the sentiment polarity of news articles in Wall Street Journal columns and found that stock returns were expected to be low in the presence of negative news information. Li et al. (2014a) represented news articles in terms of their nouns and financial sentiment words and found that the sentiment of news articles could be a good indicator of future stock trends.
Although traditional finance and modern behavioral finance have different views on how information shapes stock movements, both believe that the volatility of the stock market comes from the release, dissemination and absorption of information. Today, with the rapid development of information technology, Internet media serve as not only an important channel for investors to access information, but also constitute a key factor affecting investor sentiment and an important “risk source” affecting the stability of the stock market. Some economists have explored the power of news articles on stock market by observing stock movements alongside news feeds, and these studies have shown that in the stock market, with the media serving as the actor and the company serving as the receiver, the fluctuation of stock returns is influenced by media effects and investor cognitive bias and emotional factors (Engelberg, 2008; Kothari et al., 2009; Dougal et al.,2012; Gurun and Butler, 2012; Li et al., 2014; Li et al. 201; Glasserman and Mamaysky, 2019; Jiao et al., 2020). From a management perspective, it is more important that managers play an essential role in market activities, and they may also play a role in the fluctuation of stock prices. As the most critical manager of a firm, the CEO must realize the indispensable effect of the media on firm operations. The media portray CEO performance, which could shape the public's perceptions of a CEO's abilities and company performance (Liu, McConnell and Xu, 2017).
CEOs can maintain the company’s favorable image in the public’s mind through engaging with the media, including clarifying rumors in time, disclosing information accurately and strengthening communication with the media (Bednar, 2012; Elliott et al., 2018). Meanwhile, the exposure of negative news on a CEO could be damaging to stocks. For example, on September 24, 2018, Jingdong’s (JD’s) stock price fell by 7.47% with the biggest intraday drop of 8.14%, leading to a sharp decline in its market value, when a sexual abuse scandal concerning its CEO Qiangdong Liu was exposed. In addition, some CEOs maintain their companies’ image by increasing their personal exposure, including being exclusively interviewed on television, holding their own press conferences and endorsing the company’s new products.