The role of the media in corporate governance: Do the media influence managersʹ capital allocation decisions?

Using 636 large acquisition attempts that are accompanied by a negative stock price reaction at their announcement (“value-reducing acquisition attempts”) from 1990 to 2010, we find that, in deciding whether to abandon a value-reducing acquisition attempt, managersʹ sensitivity to the firmʹs stock price reaction at the announcement is influenced by the level and the tone of media attention to the proposed transaction. We interpret the results to imply that managers have reputational capital at risk in making corporate capital allocation decisions and that the level and tone of media attention heighten the impact of a value-reducing acquisition on the managersʹ reputational capital. To the extent that value-reducing acquisition attempts are more likely to be abandoned, the media can play a role in aligning managersʹ and shareholdersʹ interests.