CBE researcher explores the impact of foreign media on financial markets

Tracy Wang

Recent research by Associate Professor Tracy Wang from The Australian National University (ANU) College of Business and Economics (CBE) reveals foreign news outlets tend to report on United States (U.S.) firms’ earnings more negatively than domestic ones. Her findings not only reveal new sources of bias in media coverage, but the importance of making investment decisions based on multiple sources of information.

When reporting season arrives each year, firms around the globe unveil profitability figures for the preceding twelve months. While these so-called ‘earnings announcements’ provide market participants with critical insights into firm performance, so too does media coverage of the announcements.

“Such coverage typically includes vital details like revenue, expenses, profit and future projections, accompanied by expert analysis,” Tracy explains.

“The analyses offer invaluable insights that inform and influence investor decisions, shaping market sentiment and leading to immediate reactions like stock-price adjustments.”

While being instrumental in decision making, Tracy suggests coverage is not always impartial.

“Potential biases in reporting, stemming from factors such as political leanings, economic incentives, or stakeholder influences, can lead to slanted financial reporting.”

Although many of these factors are significantly different between foreign and domestic media outlets – and the U.S.’s importance in the global economy means it receives significant attention from the former – researchers have completely overlooked how foreign outlets affect U.S. equity markets.

Against this backdrop, Tracy and her team—including Professor Albert Tsang (Southern University of Science and Technology) and Dr Nathan Zhu (Zhejiang University)— use an extensive collection of articles written by thousands of media outlets across 48 countries to study differences between domestic and foreign media outlets’ reporting of U.S. firms’ earnings announcements.

The paper, published in Financial Times Top 50 journal Review of Accounting Studies, reveals that foreign media articles are more likely to be written with a negative tone than those authored by domestic-media outlets. This is especially true for outlets housed in countries that are less economically, politically, and culturally proximate to the U.S.

“Foreign media are less beholden to domestic firms and therefore less constrained in publishing news stories that are unfavourable to these firms,” says Tracy.

“Conversely, domestic-media editors can sometimes steer away from negative reporting of local firms, fearing retaliation that could hamper future access to advertising revenue.”

But Tracy stresses that these differences are not a cause for concern.

The negative slant actually enhances the informativeness of earning news, leading to reduced information asymmetry and aiding international capital flows.

“These positive ramifications extend across the financial ecosystem, benefitting not just the direct participants in the investment process, but also contributing to the broader stability and efficiency of global financial markets.”

In light of her findings, Tracy encourages investors to read a mix of local and foreign media to get varied perspectives and help balance the inherent biases in any single news source.

“Market participants should consult a wide range of media outlets, including those from countries with varying degrees of economic, political and cultural proximity to the country of the firms they are interested in,” she suggests.

 My research can aid investors, financial analysts and policymakers in better evaluating the information they receive from different media sources, making more informed decisions in a global-investment context.

The College is always keen to explore research collaborations with the public and private sector and to reconnect with alumni. Please get in touch if you would like to know more about partnering with us.

Featured expert

Tracy Wang

Associate Professor Tracy (Kun) Wang

Tracy Wang is an Associate Professor of Accounting and Convener of Master of Commerce (Advanced). She has broad research interests in the areas of corporate governance, corporate information intermediaries such as news media and financial analysts, and the determinants and consequences of financial and non-financial reporting and regulations in emerging and international financial markets.