Accounting research has shown that management responses to negative news from third parties can mitigate unfavorable investor reactions. The features of management responses that influence investor judgments, however, are unclear. This study investigates how the emphasis of management's response interacts with the lede of negative media coverage to shape investor perceptions. Using a between-subjects experiment, we find that, when there is alignment between the media lede and management's response emphasis, investor judgments become more favorable. The alignment enhances the persuasiveness of management's response, leading investors to believe that the issue is unlikely to have a negative impact on future profitability. Our findings contribute to the literature on management responses by highlighting the effectiveness of aligning a company's response with negative media coverage. In addition, we extend the psychology literature by demonstrating that the media lede is a key element to which management can tailor its response, thereby influencing investor judgments.

ABSTRACT Accounting research has shown that management responses to negative news from third parties can mitigate unfavorable investor reactions. The features of management responses that influence investor judgments, however, are unclear. This study investigates how the emphasis of management’s response interacts with the lede of negative media coverage to shape investor perceptions. Using a between-subjects experiment, we find that, when there is alignment between the media lede and management’s response emphasis, investor judgments become more favorable. The alignment enhances the persuasiveness of management’s response, leading investors to believe that the issue is unlikely to have a negative impact on future profitability. Our findings contribute to the literature on management responses by highlighting the effectiveness of aligning a company’s response with negative media coverage. In addition, we extend the psychology literature by demonstrating that the media lede is a key element to which management can tailor its response, thereby influencing investor judgments. Data Availability: Data are available from the authors upon request. JEL Classifications: M41; G11; C91.

Crisis communications experts commonly advise managers to get out ahead of the media to increase management's credibility. We use an experiment to examine how investors' responses to management getting out ahead of a negative media story are moderated by management's action plan and the media's focus on the company. When the company is the focus of the media's lede, investors respond more negatively when the company gets out ahead of the media with plans to change, instead of stay, the course to handle the negative issue. Yet, investors respond more positively when the company responds after the media with plans to change, instead of stay, the course. In contrast, when the media does not focus on the company in its lede, but instead only mentions the company in the story, we find that investors' responses are not sensitive to management's strategic disclosure choices that we examine.

We investigate the effects of management’s strategic disclosure choices when a company is faced with the prospect of a negative media mention. Crisis communications experts commonly advise managers to get out ahead of the media to increase management’s credibility. We use an experiment to examine how investors’ responses to management getting out ahead of a negative media mention is moderated by the importance the media gives the issue, and by management’s action plan. When the media gives the issue more importance, we find that investors form lower judgments of management’s credibility and of the company as an investment when management gets out ahead of, compared to responds after, the media with a plan to change course to control the issue. However, we find that investors form higher judgments of management’s credibility and of the company as an investment when management gets out ahead of the media with plans to stay the course, rather than change the course. When the media gives the issue less importance, we find that investors’ judgments are not sensitive to management’s strategic disclosure choices that we examine. Our study contributes to practice and to theory by documenting that investors’ responses to a strategy to get out ahead of a negative media mention jointly depends on the importance the media gives to the issue and management’s action plan to address the issue.

Using two experiments, we investigate the effects of management's strategic responses to negative media-mentions. In our first study, we examine the timing of management’s disclosure compared to the timing of the negative media-mention. We find that when management issues their disclosure after the media-mention compared to before the media-mention, investors process the media’s negative framing less deeply, which leads to less negative investor judgments. In our second study, we examine the effects of management’s response focus. We find that when management’s response has the same focus (industry focus vs. company focus) as the media-mention’s focus, investors process the management response more deeply, and investor judgments are more positive compared to when the focus of management’s response differs from the media mention’s focus. We also provide evidence that our results can be explained by insights from cue priming theory. Our study contributes to practice by (1) documenting that getting out ahead of a negative media-mention can be more harmful than responding after the media and (2) presenting a “focus-matched” response as a way to increase the effectiveness of a company’s response to negative news disseminated by the media.