Negative Media Tone and Leverage Adjustments

Abstract

This paper examines how negative publicity influences firms’ capital structure decision. We find that firms exhibit faster adjustment of capital structure toward the target level after more negative media coverage, advocating the monitoring role of negative media sentiment on corporate behaviors. Further, our finding is significantly stronger for non-chaebol firms. Additional analyses show that the monitoring role is stronger when firms are more scrutinized by outsiders and have better corporate governance. Overall, this paper shows evidence that negative media sentiment could play an effective role in monitoring firms’ capital structure and correcting their inefficiencies.