This study examines the relationship between the corruption of local officials and news sentiment regarding publicly listed Chinese firms. We find that corruption crackdowns lead to lower sentiment scores for released news. Moreover, we observe an underlying mechanism that corruption crackdown discourages firms from hoarding bad news, resulting in a lower sentiment score for released news. In addition, we find that firms that politically depend on local government and information asymmetry problems record lower news sentiment scores after corruption crackdowns. Overall, our results indicate that the local political environment is key in determining news sentiment.
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Wu et al. (2024) studied this question.
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