Don't talk too bad! Stock market reactions to bank corporate governance news

Abstract This paper investigates the effect of media talk on bank stock returns in response to corporate governance news. Using Loughran and McDonald's (2011) dictionary, we create four categories of word lists that define the positive/negative tone and degree of certainty/uncertainty of news. We document three relevant findings. First, negative news significantly affects bank stock returns. Second, media coverage and the degree of certainty of the news are associated with more severe stock market losses. Third, bank capital and risk-adjusted performance mitigate the effect of negative news on stock prices. Overall, our study suggests that media talk on bank corporate governance events is an important determinant of abnormal stock returns.