‘Pump and Dump’ through Media Tone: The Role of Cross-Blockholders in Corporate Litigation

We show that during corporate litigation, blockholders of the defendant firms, which often face trading illiquidity when attempting to unwind large positions of the firms, maneuver media companies they simultaneously blockhold to release news coverage favoring the defendants. By doing so, the blockholders pump up investor sentiment, “delay” an otherwise continuing decline in the defendants’ stock prices, and allow themselves more time to exit before further price depreciation – a de facto “pump and dump” strategy. Our findings indicate that the cross-blockholding between media and industrial firms creates an opportunity for institutions to distort media information content and manipulate market sentiment.