Being good or being known: Corporate governance, media coverage, and earnings announcements

Based on a sample of banking firms listed on the Taiwan Stock Exchange, we examine the impact of corporate governance and media coverage on the market reaction to unexpected earnings announcements. This study finds that positive media reports prior to bad earnings announcements have a positive short-term impact on the market's response to unexpected negative earnings, but the impact is reversed in the long term. In contrast, a better corporate governance quality has a persistent positive impact on market's reaction to unexpected negative earnings, especially when the quality of corporate governance is measured by pledge ratios. The study finding provides one central implication for managements: Yes, being good would pay off.