Negative Effects Of False Media Reports On Companies

Previous studies have shown that the positive role that media plays in supervising companies is based on credible reports. In recent years, a variety of false reports by media have damaged companies’images and interest badly and caused serious consequences to the companies economically. This suggests that the false media reports or media disinformation can also cause serious negative effect to the company. Now it is urgent to study more about false reports due to the chaotic media environment in China compared with other countries. Given the significance of researches on false media reports and few previous studies on them and in order to fill the blanks in this area, the thesis aims at conducting researches on the economic consequences and the negative effects brought to companies by false media reports.False media coverage involves a complex process. Because taking large samples fails to take the complexity of each enterprise into consideration and cannot have full and deep understanding about false reports. Therefore, the thesis combines literature research and case study together. By reviewing the relevant literature on the economic consequences brought by false media reports to companies, the thesis forms a basic research framework and further makes deep analyses of a special case. When conducting case study, the thesis applies methods of event study and comparative study.From 2012 to 2013, New Express issued 10 false reports of Zoomlion, which had a significantly bad impact on the company:the stock prices of Zoomlion fell and the accuracy of analysts’forecasts decreased. This event drew considerable attention of the public and departments of the government. Due to the large quantity and the serious nature of false reports, coupled with Zoomlion’s important position in the industry, the paper selected Zoomlion for case study.In order to better analyze the economic consequences to the company arising from inaccurate reports, the paper analyzes the economic consequences of false media reports from three aspects and of three stages. The paper researches on the stock prices, the business performances and the analysts of the company before and after the releasing of false reports and also after false media reports were clarified. In order to make the analyses more convincing, the paper compares the performances of Zoomlion with those of its main opponent Sany and the industry on average in every stage.Through the above research conducted, the thesis finds that:(1) In terms of market reaction, in the short term, the results of stock returns and cumulative abnormal returns are consistent. The company’s stock returns along with the CAR on the global market, of the main competitor and of the industry fell because of the false reports. After the false reports were clarified, the company’s stock returns, along with the CAR on the global market, of the main competitor and of the industry began to show a rising trend. This suggests that the reaction of the market to false reports is effective and in time.In the long run, in the 18 months before the release of false reports, the BHAR of Zoomlion comparing with that of the whole market and the industry had begun to decline, indicating that the market could be informed in advance of the false reports. After the false reports, BHAR decreased more markedly. Within one year after false reports being clarified, BHAR continued to drop. One year after false reports being clarified, BHAR began to show a steady trend. This suggests that there is a long-term and severe negative impact on Zoomlion from inaccurate reports.(2) In terms of business performance, the company’s operation results declined after the false reports. And after the false reports being clarified, the operating performance descended sharply.Excluding the impact of industry factors, the company’s business performance was compared with that of the industry. Before the false reports, the company’s operating performance was better than that of the industry on average. After the false reports, the company’s operating performance was still better than the industry’s average, but the gap was narrowed. After inaccurate reports were clarified, the company’s business performance began to be worse than the industry average. This suggests that after removing factors of the industry, the false reports have huge negative impact on the company’s performance and the impact is also a long-term one.(3) In terms of analysts, after the false reports were released, the number of analysts of the company declined, but it showed a rising trend compared with the industry’s average. After the false reports were clarified, the number of analysts, compared with the industry average, enjoyed a more obvious rise, indicating that analysts’ attention to the company increased owning to the false reports.In addition, the accuracy of analysts’predictions fell after the false reports. After the false reports were clarified, the accuracy of analysts’ predictions was much lower due to the prevailing optimism of analysts.The study finds that the impact of false media coverage on companies is considerable and long-term. The situation cannot immediately improve even after the false reports are clarified. The government departments, the media and major companies can get inspiration from the case study to take active measures to guard against the serious negative effects caused by the false media reports. First of all, the government should improve the legal system monitoring media reports and increase penalties for false reports. Secondly, the mass media should actively set higher industry standards and improve the expertise of reporters. Finally, companies themselves should establish risk coping mechanism and actively improve the relationship between media and companies to increase their abilities to deal with the false media reports.Due to time limitation, there are some shortcomings in the thesis like limited quantities of data acquired and the failure of the case study’s application to all companies. However, the thesis discovers a new perspective to study the negative impact that false reports of media brought to companies and it also conforms to the institutional background in China. Besides, the case study can offer some implications for other companies as well.