Media Coverage to Panel Data Analysis on the Impact of Listed

Companies’ Debt Financing Costs

Yijun Peng

Shaanxi Normal University International Business School, Xi’an, China

Keywords: Non-Negative Media Reports, Negative Media Reports, Nature of Property Right, Debt Financing Costs.

Abstract: At present, small and medium-sized enterprises generally face the difficulty of financing and expensive

financing. As a company's external governance force, the media plays a role of supervision and corporate

governance, which has a significant impact on the cost of debt financing. This paper takes A-share listed

companies on the small and medium board in 2014-2018 as the research object, constructs a panel data model

for multiple regression analysis, empirically examines the mechanism of media attention on debt financing

costs, and further explores the differences in the impact of different property rights. The results show that

media attention can help reduce the company’s debt financing costs, while reports of different natures have

different impacts in companies with different property rights, which can provide useful references for

companies to ease financing constraints, government supervision, and creditor self-protection.

1 INTRODUCTION

At present, how to alleviate corporate financing

constraints has become a common concern of the

theoretical and practical circles, and has attracted

great attention from relevant government

departments. The report of the 19th National

Congress of the Communist Party of China clearly

pointed out that “deepening the reform of the

financial system and enhancing the ability of

financial service entities, expand the financing

channels of enterprises in an all-round way.” Debt

financing is an important source of funds for the

external financing of Chinese companies, so the

factors that affect the cost of debt financing have also

become an important topic in the field of corporate

finance. Theoretically speaking, the main reason why

companies need to be subject to financing constraints

is the asymmetry of internal and external information.

In the case of information asymmetry, external

creditors will demand a higher premium due to the

consideration of information costs and default costs.

To compensate for risks, companies need to bear

higher debt financing costs.

In recent years, with the improvement of

information technology and the popularization of the

Internet, as a fourth power independent of legislation,

administration, and justice, the media’s supervisory

role in the capital market has become increasingly

prominent, it has become an important external force

that affects the operation and management decisions

of listed companies. In July 2018, a number of media

successively reported the news that Changchun

Changsheng rabies vaccine production records were

falsified and 250,000 DPT vaccines were sold to

Shandong, which immediately triggered intense

discussions among netizens and high social attention.

On October 16, the illegal production of vaccines

caused the relevant departments to impose

administrative penalties on Changchun Changsheng,

such as revocation of drug production licenses and

fines. On December 11, the Shenzhen Stock

Exchange planned to delist the company’s stocks in a

major illegal manner. The media collects and

processes information to make information publicly

available, which saves information users the cost of

information retrieval and collection, and reduces the

degree of information asymmetry. Secondly, as a

company’s external governance force, the media

plays the role of exposing financial fraud, improving

corporate governance defects, and improving

corporate performance. Media reporting on

corporate-related information can alleviate the

information asymmetry between companies and

investors. The problem helps investors to effectively

supervise the relevant decision-making of the

Peng, Y.

Media Coverage to Panel Data Analysis on the Impact of Listed Companies’ Debt Financing Costs.

DOI: 10.5220/0011163100003440

In Proceedings of the International Conference on Big Data Economy and Digital Management (BDEDM 2022), pages 111-116

ISBN: 978-989-758-593-7

111

enterprise management, which is conducive to the

alleviation of the entrusted-agent problem.

Related research shows that the media as an

informal governance mechanism will inevitably

affect the financial decision-making of corporate

stakeholders, but there are few related studies on

whether media attention affects the debt financing

costs of listed companies. This article aims to

examine in depth whether media attention affects the

cost of debt financing; whether it will increase or

reduce the cost of debt financing for companies;

divide media reports into non-negative media reports

and negative media reports according to their

substance, and Explore the difference between the

two effects on corporate debt financing costs. The

media is concerned about whether it will have a

consistent impact on the debt financing costs of

companies with different property rights.

2 PRIOR LITERATURE AND

HYPOTHESIS DEVELOPMENT

Empirical data proves that company characteristic

factors, corporate governance factors and macro-

environmental factors can all have a significant

impact on a company’s debt financing costs. The

media is regarded as the fourth power independent of

legislation, administration, and judiciary, which to a

certain extent, supplements the lack of the system. On

the whole, the media has two major functions:

information intermediary and corporate governance.

First, the media organizes, analyzes, processes, and

releases the collected information to the public,

thereby reducing information costs for information

users and reducing information asymmetry.

Secondly, the media also has corporate governance

functions such as exposing accounting scandals,

protecting investor rights, and curbing financial

restatements and financial fraud (Yang, Kong, 2017,

Wu, et al., 2019). Existing research results show that

the media play a corporate governance function

mechanism in at least three aspects, namely:

traditional supervision mechanism, reputation

mechanism and market pressure mechanism.

Based on the theory of information asymmetry,

reputation theory, and principal-agent theory, this

paper divides media reports into different types of

media reports according to the essence of the report

content, and discusses the influence of media

attention on the cost of corporate debt financing.

According to the information asymmetry theory, the

creditor cannot fully grasp the debtor's true

production and operation status in the borrowing and

lending relationship, so there is a problem of

information asymmetry between the two parties. The

study of Fang and Peress found that information

friction can be alleviated by media reporting on

information (Fang, Peress, 2009). The media plays its

role as an information intermediary, collecting and

organizing corporate information through

professional means, and passing the information to

the market. Through the media’s disclosure of

relevant information, creditors can have a more

comprehensive grasp of the company’s investment

and operation status, return the degree of information

asymmetry to a lower level, and promote creditors to

improve the accuracy when judging the required risk

reward, which is more in line with the real situation

of the enterprise. From a realistic point of view,

media reports can be divided into non-negative and

negative reports according to the type of report, while

non-negative media reports can be divided into

positive and neutral reports. Media’s positive reports

on listed companies signal to creditors that the

company’s business is in good condition and reduce

creditors’ expectations of the risks they face. At this

time, creditors will demand a lower risk

compensation premium, and thus the cost of debt

financing will be reduced. Media's neutral reports on

listed companies can enable investors to have a more

in-depth and comprehensive understanding of the

true investment and operating conditions of the

company, thereby reducing the cost of information

that investors need to pay. Therefore, non-negative

media reports reduce the investment risks faced by

creditors, and are beneficial for listed companies to

obtain debt financing with low borrowing interest

rates and a long term structure. However, when the

media reports a lot of negative news about listed

companies, it will send a bad signal to the capital

market, the creditors will face an increased risk of

default, and the financing constraint dilemma of

enterprises will be further aggravated.

From the reputation theory, reputation, as an

intangible asset of a company, will bring unexpected

benefits to the company. Therefore, companies and

managers are paying more and more attention to

establishing a good image. Generally, creditors will

assess the risks they face based on the reputation of

the company. Compared with companies with poor

reputation, the risk of default by a company with a

good reputation is lower. Therefore, creditors are

more inclined to sign a loan agreement with a

company with a good reputation. Positive media

reports help companies build a good reputation,

deepen stakeholders’ good impressions of the

BDEDM 2022 - The International Conference on Big Data Economy and Digital Management

112

company, and enhance the company’s influence and

competitiveness. Media reports on corporate neutral

news, through these information fund providers will

have a more diversified understanding of the financial

status and operating results of the company, and

enhance the company's reputation. Therefore, non-

negative media reports can enable companies to

establish a good image and have a good reputation,

thereby reducing the risk compensation required by

creditors for the company’s default risk and moral

hazard, and reducing the company’s debt financing

costs. Negative media reports of companies will

damage the company’s reputation, destroy the

company’s image, and reduce the company’s core

competitiveness. Banks and other financial

institutions will lower the company’s credit rating,

and creditors will face increased investment risks,

which will require higher the risk-reward of the

company has intensified the debt financing

constraints of enterprises. Based on the above

analysis, this article proposes the following

hypotheses:

H1: Media reports are negatively related to the

debt financing costs of listed companies.

H1a: Non-negative media reports are negatively

related to the debt financing costs of listed

companies.

H1b: Non-negative media reports are negatively

related to the debt financing costs of listed

companies.

The conventional wisdom holds that compared

with private enterprises, state-owned enterprises are

often easier to obtain bank loans because of their

property rights advantages, and private enterprises

are often subject to financing constraints. However,

the study of Wang Jiating and Zhao Liang found that

the cost of capital of state-owned enterprises is higher

than that of non-state-owned enterprises (Wang and

Zhao 2010). With the continuous improvement of my

country's financial system and the gradual

marketization of competition in the financial

industry, enterprises can obtain financial support

from more channels. In order to ensure their own

profits, banks and other financial institutions will pay

more attention to the company's operating conditions

and governance levels when issuing loans. Compared

with private enterprises, state-owned enterprises

generally have poor corporate governance and

serious information asymmetry. The media's

disclosure of company-related information will

reduce the degree of information asymmetry, so that

creditors have a deeper understanding of the

company's operating conditions, and the company's

debt financing costs will be reduced. The media

reports on the non-negative news of state-owned

enterprises, so that creditors have confidence in the

company’s development prospects and solvency, and

can establish a good corporate image. Under the same

circumstances, banks and other financial institutions

provide financial support to state-owned holding

companies. The risk of default is low. And when there

are negative media reports from companies, banks

and other financial institutions will not be different

due to the nature of corporate property rights when

assessing the risks they will face and the negative

impact of the risks. Therefore, negative media in

companies with different property rights. There is no

significant difference in the impact of reports on debt

financing costs. The following

hypothesis is proposed:

H2a: Compared with state-owned enterprises,

private enterprises will weaken the role of non-

negative media reports in reducing debt financing

costs.

H2b: Whether it is a state-owned enterprise or a

private enterprise, there is no significant difference in

the impact of negative media reports on the cost of

debt financing.

3 RESEARCH DESIGN AND

SUMMARY STATISTICS

3.1 Sample and Data Sources.

This article selects my country's A-share SME board

listed companies from 2014 to 2018 as the research

object, and selects the initial sample according to the

following criteria: (1) Exclude the research sample of

the financial industry. (2) Exclude ST or *ST research

samples. (3) Exclude the research samples that are

simultaneously listed on B shares and H shares. (4)

Excluding research samples with abnormal debt

financing costs and missing data. After screening, the

paper obtained a total of 2519 sample observations.

This article performs 1% quantile Winsorize

processing on all continuous variables to avoid the

influence of outliers. The media report data in this

article comes from CNKI's Full-text Database of

China's Important Newspapers, and other financial

data comes from the CSMAR database.

3.2 Variable Definitions

(1) The cost of corporate debt financing is measured

by the ratio of financial expenses to the total annual

average debt.

Media Coverage to Panel Data Analysis on the Impact of Listed Companies’ Debt Financing Costs

113

(2) Usually company-related news reported

through the media will always have an impact on the

company’s next debt financing cost. Media attention

is measured by LN (1 + media coverage of the

previous year). When distinguishing the nature of

media coverage, it will include the best of "violation,

illegality, breach of contract, manipulation,

false/column/addition, fraud, fraud, bribery", etc.

Reports with negative keywords are defined as

negative media reports. Positive reports and neutral

reports that are not negative reports are non-negative

media reports.

(3) According to Luo Jinhui related research on

debt financing (Luo 2012), this article selects Age

(Age), Profitability (ROE), Growth (Growth), Asset-

liability Ratio (Lev), Interest Protection Multiple

(Intcov), Equity Concentration (First), Company size

(Size) and fixed asset ratio (Tangible) are used as

control variables.

3.3 Model Setting

In order to verify the research hypothesis of this

article, this article constructs the following empirical

model.

Cost=β0+β1Media+controls+ε (1)

3.4 Summary Statistics

From the descriptive statistical results in Table 1, we

can see that the debt financing constraints faced by

listed companies in my country are significantly

different, and the gap is large. The average amount of

media coverage was 2.69, non-negative media

coverage was 2.4, and negative media coverage was

1.95, reflecting the tendency of the Chinese media to

report good news but not bad news. The average

value of property rights is 0.151, which indicates that

15.1% of the enterprises in the sample selected in this

paper are state-owned enterprises.

Table 1: Descriptive statistics.

Variable Mean Std. Minimum

Maximu

Cost 0.0241 0.0168 0.000337 0.0914

Media 0.576 0.706 0 2.69

Media1 0.457 0.615 0 2.4

Media2 0.177 0.422 0 1.95

State 0.151 0.358 0 1

Age 18.2 4.99 10 36

ROE 0.0506 0.102 -0.531 0.252

Tangible 0.225 0.141 0.00227 0.628

Size 22.1 0.885 20.3 24.5

First 0.323 0.133 0.105 0.703

Growth 0.295 0.632 -0.593 3.98

Intcov 24.6 80.3 -26.4 640

Lev 0.436 0.169 0.102 0.823

4 EMPIRICAL ANALYSIS

4.1 Media Coverage and Debt

Financing Costs

Empirically test the relationship between media

coverage, non-negative media coverage, negative

media coverage and debt financing. It can be seen

from Table 2 that the regression coefficient of media

coverage on debt financing cost is negative, which is

statistically significant at the 1% confidence level. It

shows that the higher the media’s attention to the

company, the deeper the creditors’ grasp of the

company’s investment and operation status, the

improvement of information asymmetry, the

improvement of information transparency, the

reduction of the cost of creditors’ access to

information, the alleviation of debt financing

constraints. Therefore, the hypothesis H1 has been

effectively verified. Non-negative media reports have

a negative correlation with debt financing costs, and

it is significant at the 1% level, which is in line with

the expectations of hypothesis H1a; the regression

coefficient of negative media reports on debt

financing costs is significantly positive, which

supports hypothesis H1b.

Table 2: Media coverage, non-negative media coverage and

negative media coverage and debt financing costs.

Media

coverage

Non-negative

media

coverage

Negative

media

coverage

Media -0.00188***

(-3.923)

Media1 -0.00188***

(-3.438)

Media2 0.00677***

(9.410)

Age -0.000263 -0.000253 -2.18e-05

(-0.971) (-0.933) (-0.0831)

ROE -0.00446 -0.00420 -0.00337

(-1.300) (-1.222) (-1.002)

Tangible 0.0296*** 0.0296*** 0.0297***

(5.507) (5.510) (5.648)

Size -0.00215** -0.00213** -0.00242**

(-2.037) (-2.009) (-2.352)

First -0.00482 -0.00466 -0.00182

(-0.691) (-0.667) (-0.266)

Growth -0.000187 -0.000179 -0.000187

(-0.346) (-0.331) (-0.353)

Intcov

-3.75e-

05***

-3.73e-05***

-3.61e-

05***

(-8.307) (-8.262) (-8.150)

BDEDM 2022 - The International Conference on Big Data Economy and Digital Management

114

Lev 0.0270*** 0.0267*** 0.0264***

(7.117) (7.039) (7.105)

Constan

0.0619*** 0.0611*** 0.0604***

(2.940) (2.891) (2.928)

N 2,519 2,519 2,519

0.112 0.110 0.146

4.2 Media Coverage on the Impact of

Debt Financing Costs of Companies

with Different Property Rights

When State=1, the controller type of the listed

company is a state-owned enterprise; when State=0,

the controller type of the listed company is a private

enterprise. The model (1) is tested in groups, and

Table 3 is obtained. The research in column (1) and

(2) shows that whether it is a state-owned enterprise

or a private enterprise, non-negative media reports

have a negative impact on the cost of debt financing.

The negative impact on the cost of debt financing is

greater than that of private enterprises, which

supports the expectations made by hypothesis H2a.

The research results in columns (3) and (4) show that

in state-owned or private enterprises, negative media

reports will aggravate the debt financing constraints

of the enterprises and increase the debt financing

costs of the enterprises, and the negative media

reports have all the effects on the debt financing costs.

The 1% confidence level is significant. Therefore, in

state-owned enterprises or private enterprises, the

impact of negative media reports on the cost of debt

financing is not very different, which supports the

expectations made by hypothesis H2b.

Table 3: The Impact of Media Reports on the Debt

Financing Cost of Enterprises with Different Property

Rights.

State=1 State=0 State=1 State=0

(1) (2) (3) (4)

Media1 -0.00794*** -0.000925*

(-3.951) (-1.721)

Media2 0.0171*** 0.00504***

(6.589) (7.085)

Constant 0.0814 0.065*** 0.129 0.060***

(0.884) (3.184) (1.469) (2.984)

Controls YES YES YES YES

N 381 2,138 381 2,138

0.116 0.128 0.196 0.154

5 CONCLUSION

This article selects 709 listed A-share companies on

the small and medium board from 2014 to 2018 as the

research objects, and studies the impact of media

reports on the cost of corporate debt financing, from

the relationship between media coverage and debt

financing costs, and media reports under different

keynotes. The relationship between debt financing

costs and the impact of property rights on the

relationship between media reports and debt

financing costs have been studied.

The research conclusions of this article are as

follows: (1) Media reports on companies can help

alleviate the problem of information asymmetry

between borrowers and lenders, improve information

transparency, thereby alleviating debt financing

constraints faced by companies, that is, as the amount

of media reports increase, companies’ debt financing

costs can be significantly reduced. (2) Non-negative

media reports can send a positive signal to the market,

and can establish a good reputation, which can

alleviate and reduce the debt financing costs of

enterprises; while negative media send a bad signal to

the market, help creditors understand the business

risks of enterprises, and help creditors know the

moral hazard they face through reputation

mechanisms, so creditors will demand higher

premiums to compensate for the risks. (3) Whether it

is a state-owned enterprise or a private enterprise,

non-negative media reports have a negative impact on

debt financing costs. Among state-owned enterprises,

non-negative media reports have a greater negative

impact on debt financing costs than private

enterprises. (4) In state-owned enterprises or private

enterprises, the impact of negative media reports on

debt financing costs is not very different.

At the same time, this study provides important

decision-making references for our government,

enterprises and other social groups, including the

following points: (1) Listed companies should

strengthen communication with the media, strengthen

the supervision of distorted media reports, and avoid

news reports negative impact on the company. (2)

Listed companies should use the supervision function

of the media and the role of corporate governance to

encourage companies to establish a good reputation,

improve corporate governance, improve

management,

strive to reduce operating risks, and make reasonable

and effective investment management decisions. (3)

Banks and other financial institutions should

comprehensively consider the impact of media

coverage when issuing loans to enterprises. Actively

communicate with the media in order to obtain

Media Coverage to Panel Data Analysis on the Impact of Listed Companies’ Debt Financing Costs

115

information related to the loan applicant in a timely

manner, save the collection of information, and avoid

misjudgments due to information asymmetry.

REFERENCES

Fang L., Peress J. (2009) Media Coverage and the Cross-

section of Stock Returns. The Journal of Finance,

64(05):2023-2052.

Luo J. H. (2012) The Impact of Media Reports on the Cost

of Equity and the cost of Debt and their Differences:

Empirical Evidence from Chinese Listed Companies.

Investment Research, 31(09): 95-112.

Wang J.T., Zhao L. (2010) An Empirical Analysis of the

Financing Constraints and Influencing Factors of

Listed Companies in my country. Industrial Economic

Research, (03):77-84.

Wu P., Lu S., Yang N. (2019) Research on the Role of

Media Coverage in Corporate Governance from the

Perspective of Financial Fraud. Journal of Central

University of Finance and Economics, (03): 51-69.

Yang W., Kong D.M. (2017) Media Coverage and

Corporate Socially Responsible Investment: Evidence

Based on the Consumer Goods Industry. Investment

Research, 36(09): 16-33.

BDEDM 2022 - The International Conference on Big Data Economy and Digital Management

116