Media Coverage, Investor Sentiment And Private Placement Discounts

As one of the most important channels for information dissemination,media reports have been considered to play an important role in alleviating the asymmetry of information in the capital market.The media's attention to listed companies has not only attracted investors'attention to a company,but has also increased investor demand for company stocks.In addition,the sentiment contained in media reports can also have a significant effect on investor sentiment.Media sentiment can even be used to predict stock holding returns.Previous studies explored the role of the media in the capital market,mainly focusing on scenarios such as the IPO,the bubble of the secondary market,and the recession.However,few of the prior research talked about the impact of media reports on private placements.As far as the Chinese market is concerned,private placements have always been an important way for listed companies to refinance.The discount phenomenon commonly found in private placements reflects not only the market's deviation on asset pricing,but also the increase in the cost of equity refinancing for listed companies.Therefore,this article hopes to enrich the related research on the role of media in the private placement market by exploring the influence of media attention and media sentiment on the private placement discount.Based on a thorough review of research results in the fields of media coverage and asset pricing,and private placements discounts,this article sorts out and explores related topics at the theoretical level.First of all,this article starts from the importance of private placement in the refinancing field of China's capital market before raising the issue of the existence of discount anomaly.We tried to explain this anomaly base on the theory of supervision,information asymmetry,managerial entranching,and shareholder control,all of which focus on the primary market.Further,this article proposes that the observed discount in the private placements is mainly raised by secondary market rather than primary market when focusing on the specific Chinese market.Secondly,based on the first part,this article explains the relationship between media and asset price anomalies from two perspectives:how media reports generate asset price anomalies,and how to make this anomaly persist in the market.With the results of theoretical research,we expect that:1)media coverage have aroused investors'attention and alleviated the information asymmetry between companies and investors.The greater the number of media reports,the lower the discount rate;2)the stronger the positive sentiment in the media reports,the higher the discount rate for certain placements;3)as the intermediate variable that media sentiment affects the securities market,investor sentiment is affected by media sentiment,which in turn affects the discount rate of private placements.We perform the empirical research by:1)selecting private placements which were announced by the Boards between August 1^st,2018 and December 31^st,2019.2)constructing a variable of media coverage that equals to the number of articles covering certain companies in the 30-day period before the announcement.3)constructing a variable of media sentiment.Further,we construct the proxy variable for investor sentiment with the trading volume data,in order to examine the mechanism between media reports and private placements discounts.We document that:1)during the period the private placement market is relatively pessimistic,the media's attention to the company does NOT significantly affect the discount of the private placement,while the positive sentiment of the media demonstrates a significant positive impact on the discount of the private placement;2)when the media's positive sentiment is stronger,investor sentiment also increases,which in turn leads to an increase in the discount rate of private placements.