Media Sentiment and Shareholder Litigation

ABSTRACT We find a negative association between media sentiment and the likelihood of shareholder litigation following corporate earnings restatements. Our results are robust to the use of an exogenous measure of media bias, controlling for economic determinants of litigation, and a variety of alternative research methods. Media sentiment predicts both meritorious and non‐meritorious litigation. Sentiment from highly ranked news outlets primarily predicts meritorious litigation, however, while sentiment from lower‐ranked news outlets predicts non‐meritorious litigation. Overall, our results suggest that media sentiment plays a significant role in shaping shareholders’ litigation decisions.