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A text analysis of domestic Chinese newspaper articles covering 797 proposed domestic mergers shows that the media in developing countries is susceptible to pressure: coverage is more favorable for deals consistent with government objectives and involving powerful local firms. However, we also find that coverage can affect the outcome of proposed M&A deals in non-stateowned firms. We identify this effect using an exogenous shock to market-driven governance from the Split-Share Structure Reform of 2007. Negotiation coverage predicts long-term performance, consistent with information dissemination. Despite biased coverage, domestic media in developing countries can function as an alternative channel for corporate governance.
This study adds to our understanding of the importance of alternative channels of corporate governance through the media in the developing world. Prior findings by Dyck, Volchkova and Zingales (2008) show that in the case of Russia, which may potentially be extrapolated to other countries with underdeveloped shareholder protections, domestic media has no role to play in alternative channels of corporate governance. In our analysis of Chinese domestic media coverage of 797 proposed M&A deals we do find that domestic newspaper coverage may serve a governance role despite being susceptible to political and business pressure. Politically supported acquisitions receive favorable coverage, consistent with the significant degree of government control still exercised on domestic Chinese media. Acquisitions by prominent local acquirers, as measured by the ratio of sales to province GDP, receive more positive coverage by local newspapers consistent with the findings of Gurun and Butler (2012) and the importance that business advertising plays in the developing Chinese media (Winfield and Peng, 2005; Zhao, 2005). Same-province deals are also more likely to receive no coverage at all, consistent with a self-censorship in the domestic press. Despite this bias, we also find that media coverage can influence the outcomes of certain proposed M&A deals. Specifically, more negative coverage in the domestic financial newspapers can cause non-stateowned firms to abandon acquisition attempts. This effect does not hold for stateowned firms, which are insulated from financial market discipline in terms of reduced capital market access, lower controlling shareholder values, and impaired managerial job market opportunities induced by exposure of misbehavior in the media (Fan, Wong and Zhang, 2007).