Moderating the connections: media coverage and firm market value

Purpose The purpose of this paper is to explore how a politically connected firm moderates the relationship between media coverage and market value. More specifically, the authors are interested in the interplay of an external corporate governance (CG) mechanism with an internal one. By interacting different mechanisms, this paper advances the empirical setting of application and functions of the corporate governance. Design/methodology/approach This paper tests the hypotheses presented using panel data with a fixed-effect model, by assembling and exploiting a unique, hand-collected set of data on media coverage consisting of over 164,000 media reports and a politically connected board of directors comprising over 12,000 CVs tracked from 2010 to 2014. Data is originally from Brazil, a country where political connections are highly used by firms and that has been a place of much research on corporate political activity. Findings The results of this paper suggest that a politically connected board of directors can mitigate the negative effects of media coverage on market value. Overall, the results imply that the validity of a CG mechanism might be affected by other mechanisms. Research limitations/implications The findings of this paper imply the need for research focusing on the mutual effects of different CG mechanisms. While CG is understood as a set of mechanisms, new research could focus on the interplay of these mechanisms. Practical implications The findings suggest that the presence of former politicians and government officers on the board dissipates bad news reported by the media and boosts market value when media is positive. To maximize investment returns, investors should analyze firms' political human capital. Originality/value To the best of the authors' knowledge, this paper is the first to develop hypotheses on the moderation effects of a politically connected board on the relation between media coverage and market value. This is relevant because this brings insights on how firms could jointly manage these mechanisms.