Pricing media sentiment: Evidence from global mergers and acquisitions

In this study, we examine the association between bidders' media sentiment and the acquisition performance of 5196 domestic mergers and acquisitions across 40 countries from 2000 to 2018. Our results show a causal and positive relationship between media sentiment and the bidders' announcement returns. This supports the investor attention theory, suggesting that investors perceive bidders' media sentiment as informative and value-relevant. Using a dozen major terrorist attacks worldwide as exogenous shocks to business news, we establish a more credible causal link from media sentiment to market reactions. Our results are more pronounced for firms in a higher information asymmetry environment. Additionally, our study finds that higher levels of voice and accountability within a country mitigate the positive impact of media sentiment on bidder returns. We conduct additional robustness tests to further validate these findings and to address possible endogeneity concerns.