Does Chinese Social Media Provide Less Biased Information to the Market Than Traditional Media?

Abstract: This paper examines whether privately owned social media in China supplies less positively biased information to the market than traditional state-run media. Using a comprehensive sample from 2009 to 2016 of corporate news of newspapers and the opinions shared by investors in Guba, an online stock forum, we find that the tone of the traditional and social media of the same firm on the same day is positively correlated. However, this positive correlation is significantly reduced when the tone of the newspapers is positive. Consistent with the conjecture that Guba serves as a check against the bias of state-owned media, our result suggests that the tone of Guba’s postings is less optimistic than that of the newspapers when the latter are more likely to be positively biased. We find that political factors such as state ownership of the firms being covered and the political sensitivity of the time periods during which the articles are posted shape Guba’s monitoring role against the newspapers’ bias. Finally, the positive stock return response to the tone of the traditional media’s articles is significantly attenuated when it deviates positively from that of the social media, but we do not find any significant change in stock return response to the tone of social media when it deviates from that of the traditional media.