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Corporate Fake News on Social Media

Xu, Rosy
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Xu, R. (2021). Corporate Fake News on Social Media [University of Miami].

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 UNIVERSITY OF MIAMI

CORPORATE FAKE NEWS ON SOCIAL MEDIA

By

Rosy Xu

A DISSERTATION

Submitted to the Faculty

of the University of Miami
in partial fulfillment of the requirements for
the degree of Doctor of Philosophy

Coral Gables, Florida

May 2021
 ©2021
Rosy Xu
All Rights Reserved
 UNIVERSITY OF MIAMI

A dissertation submitted in partial fulfillment of

the requirements for the degree of
Doctor of Philosophy

CORPORATE FAKE NEWS ON SOCIAL MEDIA

Rosy Xu

Approved:

________________ _________________
Fabrizio Ferri, Ph.D. Miguel Minutti-Meza, Ph.D.
Associate Professor of Accounting Associate Professor of Accounting

________________ _________________
Dhananjay Nanda, Ph.D. Guillermo Prado, Ph.D.
Professor of Accounting Dean of the Graduate School

________________
Ville Rantala, Ph.D.
Assistant Professor of Finance
XU, ROSY (Ph.D., Business)
Corporate Fake News on Social Media (May 2021)

Abstract of a dissertation at the University of Miami.

Dissertation supervised by Professor Fabrizio Ferri.

No. of pages in text. (72)

Using a unique data set on fake news about S&P 500 companies during 2016–2019, I

examine its determinants and consequences as well as the firms’ responses. I find that 8%

of the S&P 500 firms are targeted by fake news, which usually originates on social media.

Target firms tend to be more visible, have lower scores on social responsibility, and exhibit

a history of being targets of fake news. Target firms experience a 0.18% drop in abnormal

returns when fake news is released and negative abnormal returns of over 3% in the

following three months. The reduction in stock prices can be explained by both mispricing

and a loss in future sales associated with fake news. Finally, firms that take immediate

action in dispelling rumors successfully reduce the chance of future attacks by 19% and

limit damage to their market value, consistent with voluntary disclosures being an effective

mechanism for dealing with corporate fake news.

 ACKNOWLEDGEMENTS

I am deeply indebted to my advisor Fabrizio Ferri for his invaluable advice and

stalwart support. Fabrizio Ferri has, on multiple occasions, spent hours read and re-read

the early draft of my dissertation and provided insightful comments. I am incredibly

privileged to have him as my advisor. My immensely talented and dedicated advising

committee Miguel Minutti-Meza, Dhananjay Nanda, and Ville Rantala, who have taught

me rigor over the years, are excellent coauthors but even more so role models of mine. I

thank Frank Yu and Henrik Cronqvist for opening the world of academia to me and

influencing my research interests tremendously in my earlier career. I would also like to

express my gratitude to Alok Kumar for always being a source of inspiration and

encouraging me to pursue ideas that are close to my heart.

I am most fortunate to have the entire accounting and finance faculty and students

at the University of Miami. It was a joy to be surrounded by supportive and friendly

colleagues, especially Khrystyna Bochkay and Jake Krupa, whom I can always turn to for

advice. I thank my dear friends Shiyi Zhang and Melina Vosse for the intense and vibrant

discussions and constant encouragement. From them, I learned to work around obstacles,

to stand up for myself, and to think critically.

Finally, I am eternally grateful to my parents Xianjun Xu and Qun Kong, for their

love and unwavering support. Their love has made all the difference.

ROSY XU

University of Miami

May 2021

iii
 TABLE OF CONTENTS

Page

LIST OF FIGURES ................................................................................................. v

LIST OF TABLES .................................................................................................. vi

Chapter

1 INTRODUCTION ....................................................................................... 1

2 DATA AND OVERVIEW ........................................................................... 9

2.1 The Fake News Sample .......................................................................... 9
2.1.1 Characteristics of Fake News ......................................................... 11
2.1.2 Time-Series Statistics .................................................................... 12
2.2 Two Examples of Fake News ................................................................. 14
2.3 Discussions of Data Limitations and the Potential Solution .................... 15

3 CHARACTERISTICS OF TARGET COMPANIES .................................... 17

4 CONSEQUENCES OF FAKE NEWS ON CAPITAL MARKETS .............. 23

4.1 Event-Day Returns and Trading Volume Around Fake News ................. 23
4.2 Cumulative Effects of Fake News on Stock Returns ............................... 25
4.3 Robustness Tests Using the Alternative Sample ..................................... 26
4.3.1 Contemporaneous Relation Between Fake News Coverage and Trading
Activity .................................................................................................. 26
4.3.2 Cross-Sectional Variations of Trading Activity .............................. 29
4.4 Why Do Investors Trade on Fake News? ................................................ 30

5 COMPANIES’ RESPONSES TO FAKE NEWS.......................................... 33

5.1 Frequency and Type of Corporate Disclosures........................................ 33
5.2 Determinants of Corporate Disclosures .................................................. 34
5.3 Disclosures and Fact-Checking as Potential Solutions to Fake News ...... 36

6 CONCLUSION............................................................................................ 39

REFERENCES……… ............................................................................................ 40

FIGURES AND TABLES………............................................................................ 45

APPENDICES……… ............................................................................................. 62

INTERNET APPENDICES……… ......................................................................... 65

iv
 LIST OF FIGURES

Page

Figure 1 Time-Series Statistics of Corporate Fake News .......................................... 45

v
 LIST OF TABLES

Page

Table 1 Summary Statistics of Fake News Sample .................................................. 47

Table 2 Determinants of Fake News Coverage........................................................ 48

Table 3 Abnormal Returns and Turnovers Around Fake News Events ....................... 51

Table 4 Cumulative Effect of Fake News on Stock Returns ...................................... 52

Table 5 Identifying Fake News at the Publisher Level.............................................. 53

Table 6 Real Effects of Fake News on Sales and Sales Growth ................................. 56

Table 7 Companies’ Responses to Fake News ........................................................ 57

Table 8 Determinants of Corporate Responses: Fake News Characteristics................. 58

Table 9 Effects of Corporate Disclosures and Fact-Checking Organizations on Containing

Fake News Crises ................................................................................................. 60

vi
 Chapter 1: Introduction

Since the 2016 US presidential campaign, “fake news” has pervaded society, and

emerging research in economics and political science raises concerns that it is eroding

American democracy.1 However, fake news is not confined to the domains of politics; it

also poses a threat to corporations and capital markets. According to a recent survey, 64%

of business leaders across the globe are worried about false rumors regarding their firms

on social media, and 27% cite “adversarial” social media activities as the top corporate risk

(Kroll 2019). Anecdotal evidence suggests that fake news that generates bombastic head-

lines can distort stock prices and hurt a company’s reputation. For example, a tweet that

falsely claimed that Metro Bank was close to collapse caused its stock value to drop by $44

million (Binham 2019). Market regulators are aware of the threat, with the US Securities

and Exchange Commission (SEC) warning investors already in 2012 of the perils of false

rumors spreading on social media.2

In spite of its growing importance, the phenomenon of corporate fake news has re-

ceived little attention in academic research, possibly due to a lack of data and the identifi-

cation of unambiguous fake content. To fill this gap, I provide empirical evidence of the

determinants and consequences of corporate fake news, and trace actions that firms take to

limit its damage. To do so, I construct an extensive and thoroughly documented set of

1
See, for example, Allcott and Gentzkow (2017), Lazer et al. (2018), Bovet and Makse (2019), and
Grinberg et al. (2019). Concerns about fake news heightened during the COVID-19 pandemic, with Tedros
Adhanom (director-general of World Health Organization) saying at the 2020 Munich Security Conference
that “we’re not just fighting a pandemic; we’re fighting an infodemic.”
2
On January 1, 2012, the SEC issued an investor alert to raise investors’ awareness of fraudulent in-
vestment schemes that involve social media (https://www.sec.gov/files/socialmediaandfraud.pdf). The SEC
issued updated alerts in 2014 (https://www.sec.gov/oiea/investor-alerts-bulletins/ia_socialmediafraud.html),
in 2015 (https://www.sec.gov/oiea/investor-alerts-bulletins/ia_rumors.html), and in 2019
(https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_sentimentinvesting).

1
 2

observations on fake news about Standard and Poor’s (S&P) 500 companies, extending

from July 2016 through December 2019. I identify corporate fake news as corporate-related

rumors categorized as false by five independent fact-checking organizations (snopes.com,

politifact.com, truthorfiction.com, hoax-slayer.net, and factcheck.org).

Central to this paper is the definition of fake news. I follow Vosoughi, Roy, and Aral

(2018) and define fake news as any asserted claim of which the veracity has been verified

as false (known as “misinformation”). Although the term “fake news” sometimes also im-

plies a willful distortion of the truth (known as “disinformation”), I do not make any claims

about the intent of fake news purveyors in my analyses because the true intent cannot be

directly observed or credibly inferred. Another common confusion about fake news is its

difference from biased (or slanted) news. While biased (or slanted) news can be conceptu-

alized as an imprecise signal that is still informative about the true state of the world, fake

news is the distorted signal that is uncorrelated with the truth. I use the terms “fake news,”

“false rumor,” and “misinformation” interchangeably in this paper.

I obtain 264 distinct fake news events, with 8% of the S&P 500 firms being targeted

by fake news at least once during my sample period. Over 55% of the fake news in my

sample originates on social media, which is typically seen as conducive to misinformation

due to a lack of significant third-party filtering, fact-checking, and editorial judgment. Two

other major sources of corporate fake news are low-credibility websites (30%) and blogs

(11%). In terms of the content of fake news, after reading and categorizing each event, I

find that “products and services” is the largest fake news category in my sample (44%),

followed by “human rights” (27%), which involves companies and their top executives’

attitudes and policies on race, ethnicity, sex, religion, and freedom of speech. Fake news
 3

related to a firm’s “operations” constitutes the third-largest category (14%). Finally, I clas-

sify the tone of the article based on whether it praises or disparages a company and find

that the majority of fake news is negative (70%), whereas only 9% is positive, and the rest

is neutral.

My analysis opens by examining which firm characteristics determine the targeting of

fake news. Several findings bear emphasis. First, fake news tends to target large and prof-

itable firms with large numbers of employees and advertising expenditures—visible firms

have broad readership appeal and, therefore, serve the fake news providers’ ideological and

pecuniary purposes (Allcott and Gentzkow 2017). Second, target firms have lower corpo-

rate social responsibility (CSR) scores. Socially irresponsible companies are perceived

negatively among investors (Lins, Servaes, and Tamayo 2017), and fake news producers

can therefore use fabricated negative stories to provoke public fear and anger, agitate their

followers, and cause their content to be more readily shared (Bakir and McStay 2017).

Third, fake news is significantly more likely to target firms that have been affected by fake

news before. Fourth, there is no evidence that target firms have higher short interests, alt-

hough short sellers can engage in price manipulation by spreading false rumors about the

poor prospects of the firm (e.g., Allen and Gale 1992, Leuz et al. 2017). Finally, while

firms in highly competitive industries can spread false bearish news to defame the firm’s

competitors, I do not find evidence that supports this prediction in my sample.

To understand the consequences of corporate fake news, I then examine the impact of

fake news based on the market’s reaction to it. Using an event study approach, I find a

statistically significant average stock price drop of 0.18% on the day fake news appears.

The direction of the price movement is consistent with the generally negative tone of fake
 4

news. Given that the mean market capitalization of target firms is approximately $181 bil-

lion, the price reaction implies that fake news, on average, reduces the firm value by almost

$344 million. I also find some evidence of an increase in the positive abnormal trading

volume around the release of fake news. The increase in trading volume possibly reflects

the disagreement among investors—either because they interpret fake news differently or

see different information due to the selective exposure caused by segregated online social

networks (Cookson and Niessner 2020, Cookson, Engelberg, and Mullins 2020). I addi-

tionally examine the cumulative impact of fake news on stock returns and find that target

firms experience a 3.1% loss in market value in the three months following the fake news

event. The loss increases to 5.8% when comparing the three-month cumulative abnormal

returns of target firms relative to fundamentally similar but unaffected firms.

Selection bias may arise from the restriction of my sample to corporate rumors fact-

checked by the five organizations I rely on. Fact-checkers are constrained from examining

every corporate rumor by their resources and might select only certain types of rumors (e.g.,

the ones that fact-checkers consider to be significant and newsworthy). As a result, the

previously documented market reaction can be biased. To mitigate this concern and assess

the external validity of the event study results, I use an alternative sample that includes all

49,144 articles about S&P 500 firms published by 121 low-credibility websites from July

2016 to December 2019.3 This list of websites was constructed by fact-checkers, journal-

ists, and academics who identified sites that predominantly publish fabricated stories

(Lazer et al. 2018, Bovet and Makse 2019, Grinberg et al. 2019). Thus, the attribution of

3
This broader sample alleviates selection bias concerns but has its limitations: first, it requires the as-
sumption that all news published by low-credibility websites is fake news; second, there can be fake news
not published on these 121 websites; and third, it is difficult to trace the ensuring companies’ actions follow-
ing the fake news and to analyze the content of fake news, as the original articles often become unavailable.
 5

“fakeness” is not at the level of the story but of the publisher. Evidence from this alternative

sample does not alter the conclusion from the event study: a firm’s daily fake news cover-

age (i.e., the number of low-credibility articles appearing on a given day) is negatively

associated with its contemporaneous abnormal return and positively associated with con-

temporaneous abnormal turnover.

Using this alternative sample, I also examine the cross-section of the trading activity. 4

Extant research suggests that the extent to which the media influences investors depends

on the diffusion of news reports and the credibility of a news source (Dyck, Volchkova,

and Zingales 2008). Consequently, I predict that the impact of a firm’s daily fake news

coverage on abnormal returns and turnovers is larger when fake news diffuses to a larger

number of users and when investors have less viable access to credible sources of corporate

information. Consistent with these predictions, I find that fake news has a more pronounced

impact when the number of tweets corresponding to low-credibility articles is larger. I also

find that the impact of fake news is larger for firms with an opaque information environ-

ment (e.g., small firms) and high retail investor ownership, since, in contrast to institutional

investors, retail investors do not have access to professional news services such as Reuters

or Bloomberg.

I posit that investors trade on fake news for at least two reasons. First, retail investors

are boundedly rational and vulnerable to manipulation by fake news due to cognitive, social,

4
The alternative sample has two advantages for cross-sectional analyses: first, this broader sample pro-
vides enough variations in firm characteristics, and second, it provides measures of the spread of fake news
(e.g., the number of tweets that contain URLs of fake news articles).
 6

and algorithmic biases. 5 Even though sophisticated investors exist in the market, transac-

tion costs can prevent arbitrageurs who are aware of the fake news from trading against it.

Second, the reduction in stock prices reflects the decrease in the present value of the firm’s

future cash flows as fake news can have real effects on the firm’s fundamental value. For

example, fabricated stories can fool consumers into boycotting the company’s products and

reduce its sales revenue. 6 My evidence shows support for both mispricing and a reduction

of future sales associated with fake news. Specifically, I find that fake news has a stronger

impact on stock returns in firms with larger impediments to arbitrage (e.g., high idiosyn-

cratic risk and low liquidity). Additionally, I find that both the level and the growth rate of

the target firms’ sales decline in the quarter after being attacked by fake news. Economi-

cally, the sales of target firms are reduced by $55.8 million, and the growth rate of sales

drops by an average of 3.5%.

Finally, I provide evidence on companies’ responses to fake news. Prior research sug-

gests that negative corporate information or even slanted information provided by third

parties affects companies’ strategic disclosure decisions (e.g., Langberg and Sivarama-

krishnan 2008, Baloria and Heese 2018, Frenkel, Guttman, and Kremer 2020). However,

whether companies should voluntarily respond to misinformation is ambiguous. On the one

hand, disclosures are effective tools to correct misperceptions, lessen the damage, and re-

store reputation (Chakravarthy, deHaan, and Rajgopal 2014, Lee, Hutton, and Shu 2015).

5
These biases include information overload and finite attention (Weng et al. 2012), confirmation bias
and motivated reasoning (Stroud 2011), the novelty of fake news (Vosoughi, Roy, and Aral 2018), the selec-
tive exposure caused by polarized and segregated online social networks (Pariser 2011), and algorithmic
popularity bias (Salganik, Dodds, and Watts 2006).
6
See, Example 2 in Section 2.2 that fake news about PepsiCo’s (NASDAQ: PEP) CEO’s alleged view
on Trump spurs Trump supporters to boycott PepsiCo products.
 7

On the other hand, managers will not respond to fake news if they believe a rational inves-

tor cannot be fooled by misinformation or that a response would unintentionally lend cred-

ibility to the fake news. I find that companies voluntarily respond to 20% of the fake news,

with 48% of the responses taking place through social media, followed by mainstream me-

dia (29%), blogs (11%), and the company’s website (11%). This evidence is consistent

with social media being a popular disclosure channel to manage a corporate “crisis” (Lee,

Hutton, and Shu 2015). My evidence also confirms social media as a direct platform to

facilitate rapid communication with stakeholders: on average, a company takes only 0.9

days to respond to fake news via social media, while responses via mainstream media (e.g.,

NBC News and The Washington Post) take place 53.4 days after the appearance of the

original fake news.

Corporate responses are effective tools to combat fake news. I find that companies

that respond to fake news reduce the probability of future attacks by approximately 19%. I

also find that firms that take immediate action (i.e., a fewer number of days) in responding

to fake news significantly attenuate the negative cumulative impact of fake news on stock

returns. However, I find little evidence that a prompt debunking by independent fact-check-

ing organizations effectively reduces the harm of fake news—consistent with the findings

of prior literature that questions the efficacy of fact checks (Nyhan et al. 2019).

This study contributes to the very recent and emerging literature on fake news. Several

studies within this literature have examined the phenomenon of fake news in economics

(Allcott and Gentzkow 2017), political science (Lazer et al. 2018, Bovet and Makse 2019,

Grinberg et al. 2019), information science (Clarke et al. 2020), and finance (Kogan, Mos-

kowitz, and Niessner 2019). My research particularly relates to the work of Clarke et al.
 8

(2020) and Kogan, Moskowitz, and Niessner (2019), which uses the SEC crackdown on

stock promotion schemes to examine the stock price reaction to fake articles. However,

their samples focus on fake news produced by the companies themselves with the sole

purpose of manipulating stock prices. My study complements the prior work by using a

broad sample of fake news about companies produced by any subjects.

My study also contributes to the growing body of accounting research focusing on

social media and its role in capital markets. One strand of the literature investigates how

companies exploit social media to disseminate corporate news (Blankespoor, Miller, and

White 2014, Jung et al. 2018), communicate with stakeholders about negative corporate

events (Lee, Hutton, and Shu 2015, Elliott, Grant, and Hodge 2018), or even strategically

disclose negative information about peer companies (Cao, Fang, and Lei 2021). Another

strand of the literature finds that information from social media can predict firm-level earn-

ings and stock returns (Jame et al. 2016, Bartov, Faurel, and Mohanram 2018, Tang 2018).

Despite the information role that it plays, social media is often perceived as having serious

problems in terms of quality and credibility (Jia et al. 2020). Blankespoor, deHaan, and

Marinovic (2020) suggest that one interesting avenue for future research is “social media’s

lack of traditional oversight and potential for misinformation.” As Miller and Skinner

(2015) call for “a more complete theory of the role of media in financial markets,” my

study responds to such calls and provides evidence of how online misinformation distorts

stock prices and affects corporate disclosures.

 Chapter 2: Data and Overview

2.1 The Fake News Sample

I identify fake news as corporate-related rumors categorized as false by five independ-

ent fact-checking organizations on their websites: snopes.com, politifact.com, truthorfic-

tion.com, hoax-slayer.net, and factcheck.org. These fact-checking organizations are well-

known for thoroughly investigating and debunking or confirming rumors on various topics

(e.g., politics, business, science, terrorism, entertainment, and urban legends). To identify

the subset of fact-checking articles that are only related to companies, I use the Hoaxy

search engine (Shao et al. 2016, 2018a, 2018b). Hoaxy is an open platform that stores data

on articles published since July 2016 by two types of websites: (i) seven independent fact-

checking organizations that routinely fact-check unverified claims;7 and (ii) 121 low-cred-

ibility sources that often publish inaccurate, unverified, or satirical claims (the list of these

low-credibility sources is compiled and published by reputable news and fact-checking

organizations). Besides, Hoaxy also tracks tweets that contain the URLs of all articles pub-

lished by the aforementioned fact-checking organizations and low-credibility websites.

The Hoaxy system has a search engine feature that allows users to identify articles based

on keywords. Using this feature, I search for all articles that contain the company’s name

in their titles. To make the data collection and cleaning task manageable, I focus on com-

panies in the S&P 500 Index, which represent 76% of US equity market capitalization. To

eliminate survivorship bias and the impact of index addition and deletion, I examine all

7
I purposely exclude two fact-checking organizations (opensecrets.org and climatefeedback.org) in my
analyses because of their narrow focuses. Opensecrets.org routinely discloses political contributions of com-
panies and climatefeedback.org fact-checks claims related to climate change.

9
 10

595 companies ever included in the index during the sampling period from July 2016 to

December 2019.

The identification of articles related to these companies is not trivial for several rea-

sons. First, some company names can have multiple meanings (e.g., “Apple” and “Ama-

zon”) and thus generate articles unrelated to those firms. In these cases, I manually remove

the unrelated articles after reading them. Second, some companies can be known for their

subsidiaries (e.g., “Yum! Brands” versus “Taco Bell”). Therefore, I include all subsidiary

names if the firm has three subsidiaries or fewer, or the three subsidiaries most commonly

searched for on Google during the sample period if the company has more than three sub-

sidiaries. Third, one company can have several variations of its name (e.g., “Bank of Amer-

ica” and “BOA”). Thus, I compile a list of possible name variations based on the company

name in the CRSP database. Finally, one company can merge with, or be acquired by,

another company. I therefore include both company names in the post-merger/acquisition

period while searching for relevant fact-checking articles.

I employ a web-crawling program that inputs each variation of the company name and

uses the Hoaxy application programming interface (API) to download the URL link, pub-

lication date, title, and the verdict (false, true, or mixed) of fact-checking articles into a

CSV file. This process generates a total of 466 fact-checking articles between July 2016

and December 2019 for my sample of S&P 500 firms. The five fact-checking websites

have various ways of issuing a verdict on a rumor; for instance, snopes.com articles are

given a verdict of “False,” “Mostly False,” “Mixture,” “Mostly True,” or “True”; while

politifact.com articles are given a “Pants on Fire” rating for false rumors. I therefore nor-

malize the verdicts across different sites by mapping them to a score of 1 to 5 (1 = “False,”
 11

2 = “Mostly False,” 3 = “Mixture,” 4 = “Mostly True,” 5 = “True”). For my analysis, I

group all rumors with a score of 1 or 2 as false rumors, those with a score of 4 or 5 as true,

and those with a score of 3 as mixed. Table 1 Panel A presents the distribution of false,

true, and mixed rumors across the five fact-checking organizations. 8 In total, this classifi-

cation leads to 315 false rumors, 71 true rumors, and 80 mixed rumors in my sample. In

the rest of the study, I focus on the 315 corporate rumors that are identified as false.

2.1.1 Characteristics of Fake News

Using the 315 corporate rumors that are identified as false by five independent fact-

checking organizations, I record and discuss the characteristics of fake news.

First, I collect the date on which the fake news started to circulate and the source of

the fake news. Fact-checking articles usually provide detailed examinations of the date fake

news was created and its sources. In Panel A of Appendix A, I show an example of how a

fact-checking organization (i.e., snopes.com) examines the source of a false rumor about

Starbucks (NASDAQ: SBUX). If the fact-checking articles do not specify the exact date, I

search for the false claim on Google, archive.org, and related social media platforms such

as Facebook and Twitter. In cases where the false claim is reported by multiple sources, I

use the earliest date as the event date. Through this process, I am able to identify the source

of all 315 false rumors and the event dates for 271 of them (86%).

Table 1 Panel B presents the distribution of the types of fake news sources. The ma-

jority of fake news originates on social media (55%). This finding is in accordance with

8
It is not uncommon for multiple fact-checking organizations to investigate one claim. In untabulated
statistics, I find that 26% of the claims in my sample are examined by more than one fact-checker and that
the veracity of these claims is agreed upon 82% of the time. Note that all cases of disagreement are between
“mixed” and “true” or “mixed” and “false.” I do not observe any disagreement between the organizations’
verdicts for rumors that are “false” or “true.” Overall, there is considerable agreement among fact-checking
organizations.
 12

the frequent accusations that social media is conducive to misinformation due to a lack of

significant third-party filtering, fact-checking, or editorial judgment. The second-largest

source of fake news is “low-credibility websites” (30%). Some of these low-credibility

websites are established to print either entirely fabricated and misleading articles or a mix

of factual and false articles. Others publish articles with a satirical undertone, which might

be interpreted as factual when seen out of context. The third-largest source of fake news is

“blogs” (11%). A blog is a discussion or informational website published on the Internet

that consists of discrete, often informal diary-style text entries, and is often considered a

nonprofessional source of corporate information (Drake, Thornock, and Twedt 2017).

Next, I record the content of fake news. After reading all of the false rumors, I group

them into nine overarching and mutually exclusive categories: operations, governance,

products and services, human rights, employees, community, environment, political con-

tribution, and others (e.g., urban legends). The methodology of classification is available

in the Internet Appendix Table A1. Table 1 Panel C indicates that “products and services”

is the largest category, representing 44% of the false rumors in the sample, followed by

“human rights” (27%) and “operations” (14%).

Lastly, I record the tone of fake news. I classify false rumors into “positive,” “neutral,”

and “negative,” based on whether the fake news seems to praise or disparage a company.

As reported in Panel D, only 9% of the false rumors are identified as “positive” while the

majorityperhaps unsurprisinglyare “negative” (70%).

2.1.2 Time-Series Statistics

Panel A of Figure 1 presents the number of false rumors by calendar year-quarter from

July 2016 to December 2019. Overall, fake news follows a relatively uniform timing across
 13

calendar year-quarters, with a few spikes in Q4 of 2016, Q2 of 2018, and Q3 of 2019. There

is a small but significant correlation between the (log) number of false rumors in a given

quarter and the (log) total number of 10K, 10Q, and 8K filings obtained from the SEC’s

EDGAR system (2.0%, p-value = 0.069). The correlation between the (log) number of false

rumors and the (log) number of press releases in the RavenPack database is relatively larger

and stronger (4.2%, p-value = 0.000). These correlations suggest that the prevalence of

corporate fake news is likely tied to major corporate events. I further find that the (log)

number of false rumors significantly correlate with press releases about a company’s

“products and services” and those with a “negative” tone. These findings are consistent

with the statistics in Table 1 that most fake news is about “products and services” and has

a “negative” tone. These correlation findings are robust to measuring numbers of false ru-

mors, EDGAR filings, and press releases at higher frequencies, such as monthly and

weekly. 9 Overall, the evidence suggests that fake news producers possibly create fabricated

content based on recent negative corporate news.

Panels B and C plot the distribution of false rumors by calendar quarter and month of

the year. Relatively fewer false rumors occur in the fourth quarter. February, April, and

September are slightly more common than other months for fake news, but overall, there

is not much meaningful variation across calendar quarters or months.

9 In general, the correlations between the (log) number of false rumors and other measures for major
corporate events, measured by the log total number of 10K, 10Q, and 8K filings and the log number of press
releases, are low. This is because the overall fake news coverage in my sample is small—only 8% of S&P
500 firms was attacked by fake news while all S&P 500 companies filed 10K, 10Q, or 8K reports and issued
press releases.
 14

2.2 Two Examples of Fake News

To give the reader a flavor of the fake news that this paper focuses on, I provide a

description of two such cases in this subsection.

Example 1. On January 7, 2018, a 4chan user posted a Facebook screenshot suppos-

edly connected to a female employee at Starbucks (NASDAQ: SBUX) named Shanell Riv-

ers. In the screenshot, the employee claimed that she was placing blood, dog feces, and

other contaminants into the store’s products. The 4chan user urged other fellow users to

create memes, contact Starbucks, and spread the hashtag #Starbuckscontamination in order

to encourage the firing of the employee. This online campaign quickly spilled over to var-

ious social media platforms such as Facebook, Twitter, and Reddit. As a result, the Star-

bucks in question closed a few hours early that day after management received tips about

the rumor. However, this post on the 4chan forum turned out to be fake; there was no

evidence that this woman was an employee at Starbucks or that she had done any of the

things described in her Facebook post. Starbucks quickly responded to the controversy on

January 9 through Facebook and Twitter and said that they did not employ a woman named

“Shanell Rivers” and that these posts were “created maliciously.”

Example 2. Following the 2016 US presidential election, a number of low-credibility

websites quoted PepsiCo’s (NASDAQ: PEP) CEO Indra Nooyi as purportedly having

stated that supporters of Donald Trump should “take their business elsewhere.” These web-

sites referred to an interview at the New York Times DealBook Conference in Manhattan

on November 10, 2016, where Nooyi said that some company employees were upset by

the election results. However, nowhere in this interview did the CEO of PepsiCo state ei-
 15

ther explicitly or implicitly that Donald Trump supporters should “take their business else-

where.” This fabricated story led to calls on social media for a boycott of Pepsi products.

The company never directly responded to the fake news.

2.3 Discussions of Data Limitations and the Potential Solution

In my main analysis, I focus on a sample of corporate rumors debunked by fact-check-

ing organizations because it allows me to identify details about each false claim (date,

source, and content) and trace any ensuing company’s action. However, this sample has

two limitations. First, it is not a fully comprehensive sample of corporate fake news. It is

unfeasible for resource-constrained fact-checking organizations to debunk every fake

story. 10 Second, fact-checking organizations can have selection bias in deciding which

claims to fact-check. For example, some fact-checking organizations favor stories that they

consider newsworthy or significant, potentially leading to a bias toward larger compa-

nies. 11

To mitigate these two concerns and assess the external validity of the event study re-

sults, I use an alternative fake news sample in which I classify all of the articles published

by 121 “low-credibility” websites as fake news. These websites are compiled by fact-

10
Following Allcott and Gentzkow (2017), I analyze the overlap between the lists of rumors examined
by fact-checking organizations using the Szymkiewicz-Simpson overlap coefficient in the Internet Appendix
Table A2. The lack of a perfect overlap suggests that none of these lists is complete and other rumors have
likely been omitted from my sample.
11
Specifically, snopes.com fact-checks “whatever items the greatest number of readers are asking about
or searching for at any given time, without any partisan considerations.” The journalists at politifact.com
select the most newsworthy and significant claims from transcripts, speeches, news stories, press releases,
and campaign brochures; TV and social media; and statements submitted by readers. The website truthorfic-
tion.com focuses on “stories that are the most widely-circulated via social media.” Finally, factcheck.org
monitors the “factual accuracy of what is said by the president and top administration officials, as well as
congressional and party leaders,” and seeks to “devote an equal amount of time reviewing claims by Repub-
licans and Democrats.”
 16

checkers, journalists, and academics who identify those sites as publishing almost exclu-

sively fabricated and unsubstantiated stories. Thus, the attribution of “fakeness” is not at

the level of the story but at that of the publisher. Although this identification strategy has

been widely used in prior research (Lazer et al. 2018, Bovet and Makse 2019, Grinberg et

al. 2019), it suffers from various limitations: (i) some low-credibility websites print a mix

of factual and false articles and thus not all articles are, for sure, “fake”; (ii) there could be

fake news not published on these 121 websites; and (iii) it is difficult to trace the ensuring

companies’ actions following the fake news and to analyze the content of fake news as the

links to the articles on these low-credibility websites often become unavailable.

Nonetheless, this alternative identification still serves the purpose of addressing the

potential selection bias introduced by reliance on the five fact-checking organizations in

my main analysis. I retrieve all articles about S&P 500 companies published by these low-

credibility websites using the Hoaxy API, following a process similar to the one described

in Section 2.1. This alternative sample includes 49,144 fake articles related to 375 S&P

500 companies from July 2016 to December 2019. Thus, using this alternative sample,

about 63% (375/595 ≈ 63%) of the sample firms are the subject of articles published by

low-credibility websites.
 Chapter 3: Characteristics of Target Companies

What types of companies are more likely to be the target of fake news? To address this

question, it is useful to understand the motives of fake news producers for targeting com-

panies. While it is difficult to verify fake news producers’ identities and their true intents

as most online users stay anonymous, prior literature suggests two main motivations for

providing fake news (Allcott and Gentzkow 2017). The first motivation is ideological: In-

ternet trolls attribute a higher psychological utility if their fabricated views are credulously

circulated by many Internet users. For example, the fake news about Starbucks illustrated

in Section 2.2 was created maliciously by Internet trolls to promote negative sentiment

about the company. The second motivation is pecuniary, and three types of fake news pro-

ducers are likely to seek pecuniary benefits: First, fake news producers establish websites

that print fabricated articles to draw advertising revenue when users click through to the

original sites. Second, fake news producers engage in stock price manipulation schemes

(e.g., Allen and Gale 1992, Leuz et al. 2017). There are some documented instances where

short sellers spread misinformation about the firm’s poor prospects seeking pecuniary ben-

efits from the well-calibrated con.12 Third, companies can gain benefits from spreading

adverse fake news about their competitors. For example, in March 2007, Procter & Gamble

(NYSE: PG) won a jury award of $19.25 million in a civil lawsuit filed against four former

Amway distributors accused of spreading false rumors linking the company to Satanism to

advance their own business.

12
For example, in September 2018, the SEC filed charges against a hedge fund advisor and his invest-
ment advisory firm for illegally issuing false information to lower the price of Ligand Pharmaceuticals Inc.
(NASDAQ: LGND) after taking a short position. See the SEC’s press release:
https://www.sec.gov/news/press-release/2018-190.

17
 18

I discuss the empirical implementation of the predictions provided by these motiva-

tions together. First, I conjecture that visible firms that are large and profitable with large

numbers of employees and advertising expenditures are likely targets of fake news because

they have broad readership appeal and therefore better serve the fake news providers’ ide-

ological and pecuniary purposes. Second, I expect that target firms have higher short inter-

ests as short-sellers can engage in price manipulation by spreading false rumors about the

poor prospects of the firm. Lastly, I predict that firms in highly competitive industries

spread false bearish news to defame the firm’s competitors.

I employ both univariate and probit analyses to empirically test these predictions. I

consider a vector of firm characteristics that could affect a firm’s likelihood of being tar-

geted by fake news (variable definitions are in the Appendix). The unit of analysis is at the

firm-quarter level because the majority of these firm characteristics are observable at a

quarterly frequency. Table 2, Panel A reports the summary statistics of the target firms’

characteristics in the quarter before they were targeted (columns 1 to 3) and those of the

S&P 500 companies that were never targeted during the sample period (columns 4 to 6),

with differences in these characteristics and their statistical significance (columns 7 to 9). 13

In Panel B, I present the results using a probit regression to identify the partial effects of

all covariates: in column 1, the dependent variable equals one if the firm was targeted at

least once by fake news during the sample period, and zero otherwise; in column 2, the

13
I report the t-statistics for the differences in mean and the Wilcoxon signed-rank statistic (which is
asymptotically normal) for the differences in medians. Given that the distributions of many of the variables
display fat tails and skewness, the Wilcoxon statistic, which is less influenced by extreme observations,
serves as a robustness check.
 19

dependent variable equals one if the firm was targeted in the current quarter, and zero oth-

erwise. 14 In discussing the statistics, I use a conservative approach and say that the differ-

ence between the target and non-target firms is significant only if both of these criteria are

met: first, the t-statistic and Wilcoxon statistic in Table 2, Panel B indicate a two-tail sig-

nificance of at least 10%; second, the t-statistics in Table 2, Panel C remain significant at

less than the 10% level using both dependent variables.

Both the univariate and probit results suggest that target firms are significantly larger

and more profitable with higher numbers of employees and advertisement expenditures.

The pooled average (median) firm size (ASSETS) of target firms is $92.7 billion ($41.4

billion) in assets, versus $54.0 billion ($17.3 billion) for non-target firms. Target firms have

statistically higher return on assets (ROA) (0.021 versus 0.015), and lower book-to-market

ratio (BTM) (0.294 versus 0.425).15 Target companies have, on average, 127 thousand em-

ployees (EMPLOYEES), which is 88 thousand more than non-target firms. At target firms,

the average annual total advertising expenses-to-sales ratio (ADVERTISING) is 0.036 (cor-

responding to annual advertising spending of $1.4 billion), versus 0.011 for non-target

firms (equivalent to annual advertising spending of $0.2 billion). 16 All of these differences

suggest that the purpose of fake news is to attract a large set of Internet users.

14
In robustness checks, I obtain similar results when including year-quarter fixed effects to account for
potential seasonality in the fake news and an indicator of whether the company is in the retail industry with
a Fama-French 12 industry code of 1 or 9. These results are available upon request.
15
Interestingly, my evidence contrasts with that of Clarke et al. (2020) and Kogan, Moskowitz, and
Niessner (2019), who examine the SEC crackdown on stock promotion schemes in April 2017 and find that
fake news is more likely to target smaller and less profitable firms. However, their studies focus on fake
articles written by commentators who are hired by the companies to raise stock prices. Thus, it is not surpris-
ing that smaller and less profitable firms are prone to generate bullish articles under the guise of impartiality
and independence.
16
Internet Appendix Table A3 reports the industry composition of target and non-target S&P 500 firms
using the Fama-French 12 industries. The result suggests that target firms have a greater concentration in
wholesale, retail, and consumer nondurable industry categories, while they are underrepresented in finance
and utility industries. This result is consistent with my conjecture that fake news producers are more likely
to spread false rumors about consumer brands that have large advertising expenditures.
 20

Next, I test whether the demand for shorting targets of fake news increases in the quar-

ter prior to the fake news. Empirically, the level of short interest could reflect both supply

and demand of short-selling. To isolate the demand for short-selling, I control the supply

of shares available for short selling. I exploit a database on equity lending from Markit,

which includes daily data for both the number of shares lendable (a proxy for the supply

of shares available for short selling) and the number of shares on loan (a proxy for shorting

activity). Using the data from Markit, I calculate the short utilization ratio (SHORTINT):

the number of shares on loan divided by the number of shares lendable. By dividing by

shares lendable, SHORTINT accounts for the supply of shares available for shorting. How-

ever, the result in column 2 of Panel B suggests that short interests do not significantly

increase in the quarter prior to the fake news.

Then, I examine whether industry competition increases the likelihood of a firm being

a target of fake news. I measure industry competition using the Herfindahl-Hirschman in-

dex (HHI), which is well-grounded in industrial organization theory (see Tirole 1988). HHI

is defined as the sum of squared market shares in an industry-quarter, where market shares

are computed from Compustat based on firms’ sales, and the industry classification follows

the SIC three-digit code. A higher HHI implies weaker competition. However, both uni-

variate and probit results provide no evidence that firms in more competitive industries are

more likely to become fake news targets.

Lastly, I want to point out two interesting observations from the probit results. First, I

find that target firms have lower CSR ratings. Companies with low CSR scores are ideal

targets of fake news because they are often perceived negatively among investors (Lins,

Servaes, and Tamayo 2017). As a result, readers are more likely to fall prey to negative
 21

and emotional fake stories. Fake-news producers deliberately use fabricated negative sto-

ries to trigger public fear and anger, agitate their followers, and induce their content to be

shared more readily (Bakir and McStay 2017). The results in columns 3 and 4 further sup-

port the argument that firms with low CSR ratings are likely to trigger negative fake sto-

ries—firms with low CSR ratings are significantly correlated with negative fake news but

are insignificantly related to positive fake news, where the tone of the fake news is classi-

fied based on whether the fake news is to praise or disparage a company. Second, I find

that fake news is significantly more likely to target firms that have been affected by fake

news before. In column 5 of Panel B, I include an indicator variable (PAST_TARGET) to

indicate whether the company has been targeted by fake news in the previous quarters. The

coefficient on PAST_TARGET is statistically significant at the 1% level, and economically,

firms that have been previously targeted are 1.2% more likely to be targeted by fake news

again than those that have not been targeted before.

The above results show that firms that are visible, have a low social responsibility, and

exhibit histories of being targets of fake news are more susceptible to fake news. However,

the characteristics of target firms documented by previous analyses can be biased since

these characteristics can also relate to the likelihood that a firm is examined by a fact-

checker. Put differently, an analogous statement would apply if fact-checking organiza-

tions also tend to cover firms that are visible, have low social responsibility ratings, and

have been previously targeted by fake news. To mitigate such concern, I re-estimate the

probit regressions in an alternative sample where I identify fake news as all articles pub-

lished by 121 low-credibility websites (see the discussions in Section 2.3). Columns 1 to 3

of the Internet Appendix Table A4 show that these results are generally consistent with my
 22

previous findings. In column 4, I further explore which firm characteristics determine the

spreading of fake news. I use the total number of tweets about fake news articles published

in a given quarter as a measure of the spreading of fake news. I find that Internet users are

more likely to rebroadcast fake news about visible and relatively illiquid firms. 17 Interest-

ingly, I also find that fake news articles about Democratic firms are more virally shared

than those about Republican firms, where a firm’s political leaning is defined based on its

monetary contributions of political action committees to various political campaigns. 18

This finding is consistent with Allcott and Gentzkow (2016), where they document that the

average anti-Clinton fake article is more frequently shared than the anti-Trump fake article

prior to the 2016 presidential election. Possibly, the marked decline of trust in the main-

stream media among Republicans (Brenan 2020) could have increased their relative de-

mand for anti-Democratic news from nontraditional sources, as could a perception that the

mainstream media tended to favor Democrats.

17
Specifically, these firms are larger in size (LOG_ASSETS), more profitable (ROA), have higher num-
bers of employees (LOG(EMPLOYEES)) and advertising expenditures (ADVERTISING), share larger media
(LOG(1 + NEWS) and analyst coverages (LOG(1 + ANALYSTS)), and have higher bid-ask spreads (BIDASK).
18
I thank Irena Hutton, Danling Jiang, and Alok Kumar for generously providing the code to calculate
the firm-level political preference as in Hutton, Jiang, and Kumar (2014).
 Chapter 4: Consequences of Fake News on Capital Markets

4.1 Event-Day Returns and Trading Volume Around Fake News

To understand the consequences of corporate fake news on capital markets, I start by

examining the event-day stock market reaction to fake news. I test the impact of fake news

on stock prices and trading volume using an event study approach. The event day is defined

as the trading day when the fake news started to spread (or the first trading day following

the occurrence of the fake news if it occurred on a non-trading day). To avoid the con-

founding effect of concurrent news, whenever important corporate news (as reflected in

10-K, 10-Q, and 8-K filings obtained from EDGAR and press releases obtained from Rav-

enPack database) occurs from day –1 to day +1 around fake news, the events are eliminated

from the sample. Finally, I require a gap of five days between every two events for a com-

pany to avoid overlapping event windows for adjacent events. These criteria yield a final

sample of 176 fake news events from July 2016 to December 2019.

I start by assessing the effect of fake news on stock prices. To calculate the abnormal

return, I follow the standard event study approach and assume a single-factor model, where

beta is estimated over the [–100, –41] window preceding the corporate fake news event

date, and I require a minimum number of 40 non-missing return observations within the

estimation window. I obtain virtually identical results using the market-adjusted model and

Fama and French’s (1993) three-factors model. Thus, I only present results from the market

model. Panel A in Table 3 shows the time series of abnormal returns for the 11 trading days

around fake news. I report the mean and median abnormal returns and the number of pos-

itive and negative abnormal returns for each of the trading days. Panel A indicates a nega-

tive and significant share price adjustment associated with the unexpected fake news event

23
 24

on day zero. The average (median) abnormal return on the event day is –0.184% (–0.180%).

The direction of the price movement suggests that the average fake news is negative. In

particular, 104 out of 176 events (59%) are associated with negative stock price reactions

on the event day.

In the Internet Appendix Table A5, I test how the tone of fake news is associated with

the direction of the stock price movement. I classify the fake news into “positive” (11

claims), “neutral” (32 claims), and “negative” (133 claims), based on whether the fake

news praises or disparages a company. The result indicates that “negative” fake news sig-

nificantly relates to a negative stock market reaction (coefficient = –0.222, t-statistic = –

2.291). The price reaction to “positive” fake news is positive but, given the paucity of data,

is not statistically significant.

Next, I investigate the effect of fake news on trading volume. An increase in trading

volume likely suggests that either investors are subject to different information sets (i.e.,

only a subset of investors are exposed to the fake news), or they differ in the way that they

interpret the fake news. I measure abnormal trading volume as the difference between the

log turnover of the firm and its average log turnover over the [–100, –41] window prior to

the event, where the stock turnover is the percentage of outstanding shares traded on a

given day. Some, albeit limited, evidence exists that the fake news events trigger the posi-

tive abnormal stock turnover. Panel B reveals that, although the abnormal turnover on the

event day is not statistically different from zero, the number of positive to negative abnor-

mal turnover increases on the event day (0.87), relative to the day before (0.64) and after

(0.66) the fake news event.

 25

4.2 Cumulative Effects of Fake News on Stock Returns

The result in Table 2, Panel B suggests that fake news is more likely to target firms

that have been targeted in the previous quarters. Further market value losses can occur

upon follow-up misinformation as it confirms investors’ suspicion raised by the previous

fake news about the firm’s past and future earnings, asset values, and management. This

subsection, therefore, examines the cumulative loss in market value over relatively longer

time windows.

I estimate the cumulative abnormal return by summing the daily abnormal returns over

the [+2, +30] and [+2, +60] windows following the fake news. The daily abnormal return

is calculated using Carhart’s (1997) model where beta is estimated over the [–100, –41]

window preceding the corporate fake news event date, and I require a minimum number of

40 non-missing return observations within the estimation window. One concern is that if

firms with low returns in the past are more likely to be targeted by fake news, such firms

will often have negative abnormal returns during the subsequent months due to the mo-

mentum anomaly. However, as Carhart’s (1997) model uses a momentum factor that re-

lates to the stock performance in the long run, it helps cleanly estimate the impact of fake

news over a long window. The results in Panel A of Table 4 suggest that the average loss

in abnormal returns accumulates to over 1.1% in the 30 trading days and 3.1% in the 60

trading days following the fake news event.

I further estimate the cumulative impact of fake news on stock returns by comparing

the firms affected by fake news with a group of propensity score-matched firms unaffected

by fake news. This approach mitigates the concern that the treatment of fake news is non-
 26

random, and in turn, it improves precision and better isolates the treatment effect. In par-

ticular, I form one-to-one matched pairs from the same Fama-French 49 industry group

based on the determinants of fake news (i.e., firm size, return on assets, book-to-market

ratio, log number of employees, advertising expenditure, and CSR score) in the quarter

prior to the fake news event. I also include the same set of fake news determinants in the

regression to factor in any possible differences between the treatment and the control firms.

The results in Panel B of Table 4 suggest that the impact of fake news significantly lingers

over in the 30 and 60 trading days following the fake news. The point estimates on the

variable of interest (TREAT) in both columns are statistically significant at least at the 10%

level. The cumulative effect of fake news is economically sizeable—the effect translates

to a 1.8% loss in market value in the 30 trading days following the fake news crisis and a

5.8% loss in the 60 trading days following the fake news crisis relative to fundamentally

similar but unaffected firms.

4.3 Robustness Tests Using the Alternative Sample

4.3.1 Contemporaneous Relation Between Fake News Coverage and Trading Activity

To mitigate the concern of potential selection bias discussed in Section 2.3 and to as-

sess the external validity of the event study results, I use an alternative sample that contains

49,144 articles published by 121 low-credibility websites for 375 S&P 500 firms from July

2016 to December 2019. However, this alternative sample does not allow me to identify

fake news at the event level because the Hoaxy does not assign event IDs to its articles, nor

can I analyze the content as the original articles are often deleted. As a result, I use the

number of low-credibility articles appearing on a given day, rather than the occurrence of

a fake news event, as a proxy for fake news coverage. In other words, the observations are
 27

on a firm-day level. Similar to the methodology of Tetlock (2011), my test assesses the

contemporaneous relation between the daily fake news coverage and stock market trading

activity using ordinary least squares (OLS) regressions. Specifically, I estimate the follow-

ing model:

𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑖𝑖,𝑡𝑡 𝑜𝑜𝑟𝑟 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑖𝑖,𝑡𝑡 = 𝛽𝛽0 + 𝛽𝛽1 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑖𝑖,𝑡𝑡 + 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑖𝑖,𝑡𝑡 + 𝜀𝜀𝑖𝑖,𝑡𝑡 . (1)

The dependent variable is either abnormal stock return (ABRETi,t) or abnormal turno-

ver (ABTURNi,t). I calculate ABRETi,t using firm i’s raw return on trading day t minus the

return on the CRSP value-weighted index. 19 The abnormal trading volume measure (AB-

TURNi,t) is firm i’s log turnover on trading day t minus its average log turnover on days t

– 5 to t – 1. The independent variable of interest is FAKECOVi,t, constructed as the log

number of low-credibility articles that contain firm i’s name in the title published on day t.

I retrieve precise timestamp data from the Hoaxy to exclude articles that occur after 3:30

pm on day zero. This step ensures that traders have at least 30 minutes to digest and decide

whether to trade on misinformation before the market closes. The regressions only include

firm-day observations with at least five fake news articles on each day because fake news

coverage with low frequency is likely “noise.” For example, some low-credibility websites

publish one or two articles occasionally summarizing the stock performance of a company,

which should not be considered fake news. In all regressions, I include several standard

control variables to assess whether the fake news coverage affects stock returns and trading

volume above and beyond already-known sources. 20 Finally, I cluster the standard errors

19
The use of more sophisticated benchmarks has little impact on the results because the simple market
adjustment captures much of firms’ systematic returns and because the vast majority of returns in firm-spe-
cific news events are not explained by traditional risk factors (Tetlock 2011). Furthermore, all of the tests
presented below include firm size as an independent variable, which captures the expected return premium
from market beta (Fama and French 1993).
20
These control variables are log size on day t – 1 (MKTCAPi,t – 1); cumulative market-adjusted returns
on days t – 5 to t – 1 (ABRETi,[–5, –1]); average market-adjusted volatility on days t – 5 to t – 1 (IDIOVOLATi,[–
 28

at the trading day level to account for the correlations between firms’ stock returns within

trading days (Froot 1989).

Table 5 displays the results from estimating Regression (1). The main finding is that

fake news coverage is negatively associated with contemporaneous abnormal returns and

positively associated with abnormal turnovers. The coefficients of interest in column 1 of

both Panels A and B are statistically significant at least at the 5% level. The effect of fake

news coverage is also economically meaningful—a one-standard-deviation increase in

fake news coverage is associated with a drop in daily abnormal return of 10.6 basis points

(–0.242% × 0.44 ≈ –0.106%) and a 77% increase in average daily abnormal turnover

(0.042 × 0.44 / 0.024 ≈ 77%).

One problem with assessing the contemporaneous relation between fake news cover-

age and trading activity is that it is difficult to identify which variable causes the other. To

address this concern, I examine whether the fake news coverage on day t – 1 predicts the

trading activity on day t. The results in column 2 of both panels show overall similar em-

pirical patterns to the contemporaneous tests. Specifically, I find the coefficient on FAKE-

COVi,t – 1 is negative but lacks statistical significance when predicting abnormal returns

(coefficient = –0.116, t-statistic = –1.514), and positive and statistically significant when

predicting abnormal turnovers (coefficient = 0.048, t-statistic = 2.420). The evidence is

consistent with the instantaneous nature of price reactions and protracted nature of volume

reactions — unlike returns, daily trading volume is serially correlated, and an increase in

trading volume often lingers for several days (Bamber, Barron, and Stevens 2011). I also

5, –1]); the log of Amihud’s (2002) illiquidity measure averaged over days t – 5 to t – 1 (ILLIQi,[–5, –1]); and the
log of one plus the number of mainstream articles on day t (LOG (1 + NEWS)i,t). None of these controls
materially affect the results.
 29

obtain similar and even stronger results when including day-of-the-week fixed effects and

firm fixed effects (results are available upon request).

4.3.2 Cross-Sectional Variations of Trading Activity

Prior research suggests that the extent to which the media influences investors depends

on the diffusion of news reports and the credibility of a news source (Dyck, Volchkova,

and Zingales 2008). My alternative sample allows me to conduct cross-sectional analyses

for these predictions for two reasons: (i) this broader sample that includes 375 distinct S&P

500 firms provides enough variations in firm characteristics, and (ii) the Hoaxy provides

data on the spreading of articles published by 121 low-credibility websites on Twitter. In

particular, I use the average number of tweets with links to low-credibility articles that

appeared on day t as a proxy for the diffusion of fake news and test whether the impact of

fake news is greater when it reaches a larger set of investors. Columns 3 and 5 report the

regression results for firms with small and large Twitter cascades using tercile cutoffs.

Collectively, these columns reveal that fake news coverage is significantly related to con-

temporaneous stock returns when the articles are virally shared but not when the articles

remain unnoticed. Furthermore, fake news coverage is associated with an increase in daily

abnormal turnover that is over four times larger when the Twitter cascades are large (coef-

ficient = 0.086, t-statistic = 3.253) than when the cascades are small (coefficient = 0.021,

t-statistic = 0.491).

I then assess whether the influence of fake news also depends on the availability of

credible information to investors. Fake news stories are less likely to be perceived as real

if investors can easily access credible sources of information about the firm. I posit that the

impact of corporate fake news on stock returns and trading volume is greater for firms with
 30

a less transparent information environment (e.g., small firms) and higher retail investor

ownership as, in contrast to institutional investors, retail investors do not have access to

professional news services such as Reuters or Bloomberg. In columns 5 and 6, I partition

my sample into “small” firms and “large” firms according to whether the firm’s market

capitalization in the previous trading day was in the bottom or top tercile of firm size dis-

tribution, and in columns 7 and 8, I split the sample by institutional ownership. Together,

the results indicate that the impact of fake news is significantly greater among smaller firms

and firms whose ownership tends to be from retail investors.

4.4 Why Do Investors Trade on Fake News?

I investigate the reasons that investors trade on fake news. First, if the return patterns

represent mispricing due to various cognitive, social, and algorithmic biases, then fake

news should have a stronger impact on stock returns in firms with large impediments to

arbitrage. To test this prediction, I split the alternative sample according to two commonly

used arbitrage cost measures: idiosyncratic volatility and illiquidity and estimate Regres-

sion (1) in each sub-sample. 21 I measure idiosyncratic volatility by calculating the mar-

ket-adjusted volatility over the prior week. The illiquidity measure is the prior week’s av-

erage log daily Amihud (2002) illiquidity measure. In columns 9 to 12 of Table 5, Panel A,

I find that the effect of fake news on contemporaneous abnormal returns is statistically

significant for firms with high idiosyncratic volatility (coefficient = –0.438, t-statistic = –

2.176) and those with high illiquidity (coefficient = –0.455, t-statistic = –2.084). However,

21
Shleifer and Vishny (1997) argue that the risk associated with the volatility of arbitrage returns deters
arbitrage activity. Roll, Schwartz, and Subrahmanyam (2007) present empirical evidence that violation of
no-arbitrage relation is related to liquidity because liquidity facilitates arbitrage.
 31

fake news only has a small and marginal impact on firms that have low idiosyncratic vol-

atility or that have low illiquidity. The evidence is consistent with a limit-to-arbitrage view

in which boundedly rational retail investors generate the mispricing and sophisticated in-

vestors are unable to fully arbitrage away mispricing due to transaction costs.

Second, the reduction in stock prices can reflect the present value of the firm’s future

loss in sales revenues associated with fake news. To examine this prediction, I compare the

change in sales or sales growth around the fake news event for target firms and a group of

propensity score-matched unaffected firms. The matching methodology is the same as in

Section 4.2 and thus is not repeated here. Specifically, I examine the following model:

𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖,𝑡𝑡 𝑜𝑜𝑜𝑜 𝑆𝑆𝑆𝑆𝐿𝐿𝐸𝐸𝐸𝐸_𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡 = 𝛽𝛽0 + 𝛽𝛽1 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑖𝑖 × 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑡𝑡 + 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑖𝑖,𝑡𝑡 +

𝜑𝜑𝑖𝑖 + 𝜐𝜐𝑡𝑡 + 𝜀𝜀𝑖𝑖,𝑡𝑡 . (2)

The dependent variable is either 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖,𝑡𝑡 (defined as sales scaled by lagged assets)

or 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆_𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡 (defined as the growth rate of sales over the previous quarter).

𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑖𝑖 is an indicator variable that equals one if the firm is affected by fake news (“treat-

ment”) and zero if the firm is in a propensity score-matched sample of unaffected firms

(“control”). 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑡𝑡 is an indicator variable that equals one if t is in the quarter immediately

following the fake news and zero if t is in the quarter immediately preceding the fake news.

I include a vector of firm characteristics, 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑖𝑖,𝑡𝑡 , that determine the targeting of fake

news, to restore the “randomness” of the treatment and improve the precision of the treat-

ment effect. I also include firm fixed effects, 𝜑𝜑𝑖𝑖 , to ensure that I estimate the impact of fake

news after controlling for any fixed differences between firms, and I also include year-

quarter fixed effects, 𝜐𝜐𝑡𝑡 , to account for any secular time trends. I cluster the standard errors
 32

at the firm level. If fake news impairs sales or sales growth, I expect the coefficient of

interest (𝛽𝛽1 ) to be negative.

Table 6 reports results from estimating Regression (2). The negative and statistically

significant coefficients of interests for both 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖,𝑡𝑡 (coefficient = –0.009, t-statistic = –

1.669) and 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆_𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡 (coefficient = –0.035, t-statistic = –1.720) indicate that,

after being attacked by fake news, both the level and the growth rate of target firms’ sales

decline. Economically, the sales of target firms are reduced by $55.8 million, and the

growth rate of sales drops by an average of 3.5%. Overall, the results in Table 6 imply that

the stock market reaction to fake news partially reflects the decrease in the present value

of future cash flows as fake news impairs a company’s sales revenue and sales growth.
 Chapter 5: Companies’ Responses to Fake News

5.1 Frequency and Type of Corporate Disclosures

To examine the action that companies take to dispel false rumors, I start by showing

the frequency and type of companies’ voluntary responses to fake news. To do so, I conduct

an extensive reading of each fact-checking article and hand-collect information on whether

the firm responds to the fake news, the date of such response, and the response channel. In

Panel B of Appendix A, I show an example of how a fact-checking organization provides

analyses of a company’s responses to a rumor. As shown in Table 7, companies respond to

20% of the fake news—that is, 62 of the 315 false rumors in my sample (Panel A)—and

are more likely to respond to “negative” than “positive” fake news (Panel B), presumably

because fake news with negative undertones has the potential to trigger severe market out-

comes.

Social media has become a popular disclosure channel to contain corporate “crises”

because it allows a firm to directly and quickly reach a large network of stakeholders with

its intended message (Lee, Hutton, and Shu 2015). Consistent with this trend, Panel C

shows that companies respond to 48% of fake news through social media, followed by

mainstream media (29%), blogs (11%), and company websites (11%). Panel D shows that,

on average, a company responds to fake news on social media in only 0.9 days, confirming

one considerable advantage of embracing social media as a viable disclosure channel in

handling a corporate crisis: it enables a company to facilitate rapid communication with

stakeholders. In contrast, companies spend 53.4 days on average to respond through main-

stream media, perhaps reflecting the slower nature of the journalistic process.

33
 34

5.2 Determinants of Corporate Disclosures

I then probe deeper into which fake news is more likely to trigger corporate responses.

Table 8 reports results from probit analyses of the determinants of corporate responses. As

a main dependent variable, I use an indicator variable that equals one if the company re-

sponds to the fake news (RESPONSE). All regressions include a set of determinants of fake

news to account for possible differences in firm characteristics.

In column 1, I test whether companies are more likely to respond to fake news with a

more severe event-day market outcome (ABRET). The negative and statistically significant

coefficient on ABRET suggests that companies are significantly more likely to respond to

fake news with a more negative abnormal return on the event day. In column 2, I include

NEG_ABRET as an explanatory variable, which indicates whether the abnormal return on

the event day is negative. I find that companies are approximately 10% more likely to re-

spond to “negative” fake news than “non-negative” fake news, consistent with the results

in Panel B of Table 6 that companies respond disproportionally more to fake news with

“negative” undertones.

Column 3 shows how the likelihood of companies’ responses varies with the content

of fake news. I include a set of indicator variables capturing the different categories of fake

news content. 22 The intercept of the regression is suppressed because of the full span of the

indicator variables. Thus, all the coefficients on the indicator variables can be interpreted

as the average effect on the likelihood of corporate responses of one particular content

category. The result in column 3 suggests that employee-related content significantly trig-

gers corporate responses (coefficient = 2.270, t-statistic = 1.658). The coefficient on

I group false claims that do not fall into “products and services,” “human rights,” “operations,” or
22

“employees” categories into one category, OTHER_CATEGORIES, because of their low frequency.
 35

PRODUCTS_SERVICES also remains large, although the estimate is not statistically dis-

tinguishable from zero (coefficient = 1.764, t-statistic = 1.284).

Finally, I examine the role of the source of fake news in predicting the likelihood of

corporate responses. Accordingly, I include a set of indicator variables that capture differ-

ent sources of fake news, and the intercept of the regression is suppressed to facilitate the

interaction of the coefficients on the indicator variables. 23 The result in column 4 demon-

strates that fake news from blogs significantly triggers corporate responses (coefficient =

2.316, t-statistic = 1.769). I also find that the coefficient on SOCIAL_MEDIA is of similar

magnitude and close to statistically significance at the 10% level (coefficient = 2.287, t-

statistic = 1.556). In column 5, I further explore whether the channel that companies adopt

to respond to fake news is contingent upon the source of fake news. Specifically, I use a

dependent variable that indicates whether a company responds through social media (RE-

SPONSE_SOCIAL) and find that companies are significantly more likely to clarify false

rumors through social media if the rumor also originates from it. This finding likely sup-

ports one important advantage of social media: it allows companies to engage in direct

online dialogues with their stakeholders (Lee, Hutton, and Shu 2015).

In the Internet Appendix Table A6, I also examine which firm characteristics deter-

mine the corporate responses to fake news using both univariate and probit analyses. I

focus only on firms that were targeted by fake news. The analysis framework is similar to

examining the characteristics of target firms in Section 3 and thus is not repeated here.

Several features are noteworthy. First, target firms with high stock returns and large trading

volumes are more likely to respond. Second, target firms with a low industry Herfindahl-

23
I group false claims that do not originate from “social media,” “low-credibility websites,” or “blogs”
into one category, OTHER_SOURCES, because of their low frequency.
 36

Hirschman index tend to respond to fake news, possibly because the consequence of not

dispelling false rumors is more severe in a competitive business environment. Lastly, rel-

ative to Republican target firms, Democratic firms are more likely to respond to fake news.

5.3 Disclosures and Fact-Checking as Potential Solutions to Fake News

A question that remains is how fact-checking from companies and third parties suc-

ceeds in containing fake news crises. It could appear obvious that corporate disclosures

and fact-checking organizations help correct the misperception and that, as a result, their

actions mitigate the impact of fake news. However, corrections also lead people to accept

corrected information without changing their attitudes toward the underlying company,

creating “belief echoes,” and even enhance their misperceptions (e.g., Nyhan and Reifler

2010, Thorson 2016, Nyhan et al. 2019). Likewise, fact checks can be limited in their reach

due to selective exposure; for example, they may not reach investors who are most exposed

to misinformation. Therefore, whether corporate disclosures and fact-checking organiza-

tions are effective tools to combat fake news is ex-ante unclear.

I start by examining whether corporate disclosures reduce a company’s probability of

being attacked again by fake news. In column 1 of Table 9, I use a probit model in which

the dependent variable (ATTACK) is an indicator that equals one if the company is attacked

again by fake news over the [+30, +60] window following the first attack, and zero other-

wise. The variable of interest (RESPONSE_30DAYS) is an indicator with a value of one if

the company responds to the fake news event within 30 days and zero otherwise. In column

2, I control for the severity of the fake news, as measured by the abnormal return on the

event day (ABRET) as well as a set of firm characteristics. I find negative and statistically

significant coefficients of interest in both columns, suggesting that the company’s response
 37

is significantly associated with a lower probability of being attacked again by fake news.

The effect is economically meaningful—companies’ clarification of fake news reduces the

marginal probability of being attacked again within 60 days by approximately 19%.

I then test whether a prompt corporate response succeeds in lessening the impact of

corporate fake news. Column 3 regresses long-term cumulative abnormal returns over the

[+2, +60] window following the event date (4FCAR[+2, +60], a proxy for corporate rep-

utation) on the number of days that a firm takes to respond (RESPONSE_TIME). I find that

a prompt firm response significantly attenuates the negative impact of fake news on long-

term firm value. The point estimate on RESPONSE_TIME is –0.031 and statistically sig-

nificant at the 1% level (t-statistic = –3.883). In column 4, I include the same set of control

variables as in column 2 and find a statistically significant coefficient of interest of –0.039

(t-statistic = –2.322). Together, the evidence suggests that target companies that stop the

fake news at its origin succeed in altering investors’ negative perceptions and lessening the

damage of the fake news. Economically, responding to fake news one day sooner corre-

sponds to a smaller reduction in cumulative abnormal returns over the [+2, +60] window

following the fake news of 3.1 to 3.9 basis points.

Finally, I turn to the role of fact-checking organizations in mitigating the impact of

fake news. In column 5, I use an independent variable, DEBUNK_TIME, measured as the

number of days between the start of the fake news and the publication date of the fact-

checking article. If the fake news is fact-checked by multiple organizations, the earliest

publication date is used. In column 6, I add the measure for the severity of the fake news

and the set of firm characteristics. The results in both columns suggest that fact-checking

by independent organizations have no moderating effect on the reputational damage caused

 38

by fake news, which is consistent with the findings of the prior literature that questions the

efficacy of fact checks (Nyhan et al. 2019).

 Chapter 6: Conclusion

Using a novel and comprehensive data set of corporate-related fake news, this study

is the first to provide evidence of the determinants and consequences of the spread of fake

news about corporations as well as firms’ responses. I find that social media has become a

breeding ground for corporate fake news. Likely victims include companies that are visible,

perceived as socially irresponsible, and have been previously attacked by fake news. My

evidence also suggests that corporate fake news distorts stock prices, and the distortion in

stock prices can be explained by both mispricing and a reduction of future sales associated

with fake news. Finally, voluntary disclosures serve as a potential antidote to fake news

because companies that take immediate action in redressing fake news reduce the chance

of future attacks and succeed in lessening the damage to their market value.

This study should be of interest to regulators, business leaders, and investor commu-

nities. Major social media platforms have introduced various features to help social media

users discern fake content. For example, Facebook removes fake news sites from its adver-

tising platform and partners with fact-checkers to flag suspicious posts. Twitter has systems

for reporting accounts that attempt to impersonate a brand. Still, more action is needed to

combat corporate fake news. Regulators should adopt effective tools to prevent and detect

it, and business leaders need to closely monitor increasingly varied threats on social media

and stop fake news at its origin. My research also intends to increase investors’ awareness

of fake news when trading on information from social media.

39
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Figure 1: Time-Series Statistics of Corporate Fake News
This figure shows the time-series statistics of corporate fake news. Corporate fake news is defined as the
corporate rumors identified as “false” by five independent fact-checking organizations (snopes.com, politi-
fact.com, truthorfiction.com, hoax-slayer.net, and factcheck.org). Panel A presents the counts of false rumors
by calendar year-quarter. Panel B presents a frequency distribution of false rumors by each quarter of the
year. Panel C presents a frequency distribution of false rumors by each month of the year.

Panel A: The Number of False Rumors by Calendar Year-Quarter

45
 46

Panel B: Quarter-of-Year Frequency Distribution of False Rumors

Panel C: Month-of-Year Frequency Distribution of False Rumors

 47

Table 1: Summary Statistics of Fake News Sample

This table presents an overview of the sample of corporate rumors related to S&P 500 firms from July 2016
to December 2019 (see Section 2.1 for a description of the sample construction). Panel A shows the number
of “false,” “true,” and “mixed” corporate rumors examined by five independent fact-checking websites
(snopes.com, politifact.com, truthorfiction.com, hoax-slayer.net, and factcheck.org). The subset of corporate
rumors classified as “false” is labeled as “fake news.” Panel B lists the sources of fake news and their relative
frequency. Panel C shows the distribution of fake news by content category. Panel D shows the distribution
of fake news by tone towards the company, i.e., “positive,” “neutral,” and “neutral.”

Panel A: Number of False, True, and Mixed Rumors by Fact-Checking Organizations

The Veracity of the Claim
Fact-Checking Organizations N
False True Mixed Total
snopes.com 191 52 44 287
politifact.com 65 8 12 85
truthorfiction.com 30 8 22 60
hoax-slayer.net 14 3 1 15
factcheck.org 15 0 1 16
Total 315 71 80 466

Panel B: Distribution of Fake News by Sources

Sources Freq. Percent
Social media 174 55.24
Low-credibility websites 93 29.52
Blogs 35 11.11
Mainstream media 5 1.59
Political statements 5 1.59
Messaging (e-mails, letters, texts) 3 0.95
Total 315 100

Panel C: Distribution of Fake News by Content

Categories Freq. Percent
Products and services 138 43.81
Human rights 85 26.98
Operations 44 13.97
Governance 12 3.81
Employees 10 3.17
Community 9 2.86
Other 6 1.90
Political contribution 6 1.90
Environment 5 1.59
Total 315 100

Panel D: Distribution of Fake News by Tone

Tone Freq. Percent
Positive 27 8.57
Neutral 68 21.59
Negative 220 69.84
Total 315 100
Table 2: Determinants of Fake News Coverage
This table shows both univariate and probit analyses of the determinants of fake news coverage. Panel A reports the characteristics of target companies in columns
1 to 3 and non-target companies in columns 4 to 6. The last three columns report the difference in means, with the corresponding t-statistic and the Wilcoxon
signed-rank statistic (which is asymptotically normal) for the difference in medians. Panel B reports results from probit regression analyses of the likelihood of
being targeted. In column 1, the dependent variable is an indicator that equals one if the company was targeted at least once by fake news during the sample period
and zero otherwise. In column 2, the dependent variable is an indicator that equals one if the firm was targeted by fake news in the current quarter. In columns 3
and 4, I separately test the determinants of being targeted by positive and negative fake news in the current quarter, where the tone of fake news is classified based
on whether the fake news is to praise or disparage a company. The dependent variable in column 5 is the same as in column 2, and I further include an indicator
variable that equals one if the company has been targeted by fake news in the previous quarter as a covariate. The unit of analysis is at the firm-quarter level.
Variable definitions are in Appendix B. I report t-statistics based on standard errors clustered at the firm level in the parentheses. I also report the probability change
(%) in the dependent variable induced by either a one-standard-deviation change in the continuous independent variable or a discrete change from 0 to 1 in the
dichotomous independent variable, holding other variables at their sample averages, in squared brackets. ***, **, and * denote significant levels at 1%, 5%, and
10%, respectively.

Panel A: Characteristics of Target Firms versus Non-Target Firms: Univariate Analysis

Target (N = 512) Non-Target (N = 6,476) Diff. (Target – Non-Target)
Mean Median St.Dev Mean Median St.Dev Diff. in Means t-stat of Diff. Wilcoxon
(1) (2) (3) (4) (5) (6) (7) (8) (9)
ASSETS ($billion) 92.728 41.443 12,946.20 54.000 17.301 16,075.00 38.728 6.702*** 12.979***
ROA 0.021 0.018 0.000 0.015 0.012 0.000 0.006 6.175*** 8.102***
RET 0.029 0.029 0.016 0.031 0.033 0.017 –0.002 –0.277 –0.596
BTM 0.294 0.240 0.057 0.425 0.334 0.121 –0.132 –8.424*** –9.312***
VOLATILITY 1.515 1.404 0.444 1.580 1.437 0.420 –0.064 –2.157** –2.727***
TURNOVER (%) 0.890 0.739 0.363 0.897 0.738 0.326 –0.006 –0.244 –1.438
BIDASK 0.023 0.019 0.000 0.025 0.020 0.000 –0.001 –1.971** –3.501***
EMPLOYEES (k) 127.3 88.7 14,026.85 39.4 16.3 4,342.04 87.851 26.927*** 21.209***
ADVERTISING 0.036 0.026 0.001 0.011 0.000 0.001 0.025 22.042*** 22.117***
NEWS 42.439 31 1,252.81 16.036 11 318.363 26.404 29.247*** 19.060***
CSR 1.204 1.129 0.788 1.229 1.129 0.795 –0.025 –0.614 0.393
SHORTINT 0.080 0.030 0.018 0.091 0.041 0.015 –0.010 –1.842* –5.172***
ANALYSTS 15.025 14 56.271 11.463 11 46.725 3.563 11.269*** 10.426***
HHI 0.475 0.373 0.098 0.328 0.213 0.083 0.147 11.054*** 11.765***
REPUBLICAN 0.555 0.512 0.017 0.576 0.500 0.022 –0.021 –3.153*** –0.775

48
 49

Panel B: Determinants of the Likelihood of Being Targeted by Fake News: Probit Analysis
Dependent Variables: Indicator of Indicator of Being Targeted in the Current Quarter
Being Tar-
geted
All All Positive Negative All
(1) (2) (3) (4) (5)
LOG(ASSETS) 0.405*** 0.479*** 0.356*** 0.456*** 0.349***
(4.510) (4.541) (3.519) (3.742) (3.863)
[3.516] [0.842] [0.137] [0.657] [0.574]
ROA 7.275** 11.131*** 11.616*** 11.266*** 8.306***
(2.202) (3.004) (2.719) (2.883) (2.688)
[0.014] [0.004] [0.001] [0.004] [0.003]
RET –0.503** 0.008 –0.908** 0.435 –0.070
(–2.323) (0.024) (–2.481) (0.960) (–0.217)
[–0.041] [0.000] [–0.003] [0.006] [–0.001]
BTM –1.380*** –1.375*** –1.475*** –1.164*** –1.038***
(–3.736) (–4.410) (–3.865) (–3.464) (–3.771)
[–0.789] [–0.159] [–0.037] [–0.111] [–0.113]
VOLATILITY –0.124 –0.147 –0.188 –0.213 –0.169
(–0.826) (–0.801) (–0.763) (–1.077) (–1.016)
[–0.255] [–0.061] [–0.017] [–0.073] [–0.066]
LOG(0.00255 + TURNO-
VER) 0.499** 0.570*** 0.676*** 0.609** 0.492***
(2.198) (2.644) (2.646) (2.542) (2.638)
[0.683] [0.158] [0.041] [0.139] [0.128]
BIDASK 6.397 1.703 –8.820 3.965 –1.092
(1.128) (0.383) (–1.135) (0.957) (–0.355)
[0.008] [0.000] [–0.000] [0.001] [–0.000]
LOG(EMPLOYEES) 0.317*** 0.155* 0.104 0.167* 0.126*
(3.091) (1.769) (0.961) (1.745) (1.827)
[3.257] [0.323] [0.047] [0.286] [0.245]
ADVERTISING 14.118*** 9.746*** 8.193*** 8.916*** 6.794***
(4.876) (4.473) (3.658) (3.785) (3.797)
[0.045] [0.006] [0.001] [0.005] [0.004]
LOG(1 + NEWS) 0.074 0.067 0.279** 0.044 0.029
(0.720) (0.521) (1.994) (0.311) (0.287)
[0.529] [0.097] [0.088] [0.053] [0.039]
CSR –0.237*** –0.175*** –0.047 –0.202*** –0.157***
(–3.059) (–2.986) (–0.825) (–3.607) (–2.910)
[–0.921] [–0.138] [–0.008] [–0.130] [–0.116]
SHORTINT –0.063 0.349 0.489 –0.076 0.524
(–0.069) (0.552) (0.715) (–0.119) (1.024)
[–0.005] [0.005] [0.002] [–0.001] [0.007]
LOG(1 + ANALYSTS) 0.096 0.037 –0.053 0.010 –0.025
(1.106) (0.277) (–0.315) (0.075) (–0.192)
[0.201] [0.016] [–0.005] [0.004] [–0.010]
HHI 0.465 0.127 0.133 –0.137 –0.061
(1.376) (0.486) (0.518) (–0.466) (–0.264)
[0.193] [0.011] [0.002] [–0.009] [–0.005]
REPUBLICAN 0.052 –0.413 –0.115 –0.559 –0.034
(0.097) (–0.861) (–0.268) (–1.143) (–0.089)
[0.006] [–0.009] [–0.001] [–0.010] [–0.001]
PAST_TARGET 1.260***
(7.596)
[1.167]
Constant Yes Yes Yes Yes Yes
 50

N 6,988 6,988 6,988 6,988 6,988

Pseudo R-squared 0.327 0.278 0.296 0.256 0.383
Percentage targeted 7.327% 1.774% 0.744% 1.331% 1.774%
 51

Table 3: Abnormal Returns and Turnovers Around Fake News Events

This table shows the stock price and trading volume reaction to the release of corporate fake news. Panel A
reports the mean and median abnormal return for each trading day, starting from five days before the fake
news event to five days after. Panel B reports the mean and median abnormal turnover during the [–5, +5]
event window. The table also reports the ratio of positive to negative abnormal return observations and pos-
itive to negative abnormal turnover observations for each day during the event window.

Trading Day/Event Window N Mean Median t-statistic #Positive/#Nega-

tive
Panel A: Daily Abnormal Returns (%)
–5 176 0.066 0.069 0.827 1.17
–4 176 –0.127 –0.070 –1.613 0.89
–3 176 –0.025 –0.071 –0.292 0.81
–2 176 0.017 0.040 0.119 1.10
–1 176 0.069 –0.087 0.689 0.76
0 176 –0.184 –0.180 –2.007** 0.69
+1 176 0.095 0.020 1.109 1.07
+2 176 0.145 –0.004 1.320 1.05
+3 176 –0.162 –0.090 –1.147 0.93
+4 176 0.007 –0.006 0.073 0.98
+5 176 0.049 –0.053 0.419 0.87
Panel B: Daily Abnormal Turnovers
–5 176 –0.092 –0.133 –2.513** 0.63
–4 176 –0.069 –0.082 –1.898* 0.68
–3 176 –0.055 –0.080 –1.523 0.83
–2 176 0.017 –0.058 0.478 0.81
–1 176 –0.028 –0.118 –0.761 0.64
0 176 –0.036 –0.056 –0.995 0.87
+1 176 –0.031 –0.086 –0.855 0.66
+2 176 –0.015 –0.069 –0.422 0.73
+3 176 –0.030 –0.024 –0.814 0.85
+4 176 –0.032 –0.065 –0.891 0.81
+5 176 –0.025 –0.065 –0.689 0.80
 52

Table 4: Cumulative Effect of Fake News on Stock Returns

This table shows the cumulative effect of fake news on stock returns. Panel A presents the mean and median
cumulative abnormal returns over the [+2, +30] and [+2, +60] event windows. The abnormal return is calcu-
lated using Carhart’s (1997) four-factor model where beta is estimated over the [–100, –41] window preced-
ing the fake news. Panel B presents the results from estimating the effect of fake news on cumulative abnor-
mal returns in a propensity score-matched sample using OLS regressions. I match firms on the basis of the
same Fama-French 49 industry group and the determinants of fake news in the quarter prior to the fake news
event. TREAT is an indicator variable that equals one if the firm is affected by fake news (“treatment”) and
zero if the firm is in a propensity score-matched sample of unaffected firms (“control”). The definitions of
other variables are in Appendix B. I report t-statistics based on standard errors clustered at the firm level in
parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Cumulative Abnormal Returns (%)

N Mean Median t-statistic #Positive/#Negative
4FCAR[+2, +30] 176 –1.103 –3.525 –1.677* 0.90
4FCAR[+2, +60] 176 –3.137 –3.532 –2.849*** 0.90
Panel B: Propensity Score-Matched Sample
Dependent Variables: 4FCAR[+2, +30] 4FCAR[+2, +60]
(1) (2)
TREAT –1.820* (–1.921) –5.808** (–2.536)
LOG(ASSETS) 0.202 (0.510) 0.834 (0.986)
ROA 50.046* (1.800) 94.481 (1.300)
BTM 9.084*** (3.732) 18.762*** (3.583)
LOG(EMPLOYEES) –0.092 (–0.231) –0.064 (–0.073)
ADVERTISING –7.466 (–0.463) 0.271 (0.010)
CSR –0.203 (–0.504) –0.663 (–0.965)

Constant Yes Yes

N and Adjusted R-squared 352 0.026 352 0.061
Table 5: Identifying Fake News at the Publisher Level
This table presents results from the estimation of Regression (1) using OLS regressions. The table shows the contemporaneous relation between fake news coverage
and stock market trading activity in an alternative sample of fake articles published by 121 low-credibility websites. The dependent variable in Panel A is the daily
abnormal return (ABRETi,t ), which is constructed using firm i’s raw return minus the return on the CRSP value-weighted index on day t. The dependent variable
in Panel B is the daily abnormal turnover (ABTURNi,t ), which is calculated as firm i’s log turnover on trading day t minus its average log turnover on days t – 5 to
t – 1. The variable of interest is FAKECOVi,t, measured as firm i’s log number of low credibility articles appearing on day t. In column 2 of both Panel A and B, I
include firm i’s log number of low credibility articles appearing on day t – 1 (FAKECOVi,t – 1). The control variables in both Panel A and B are log size on day t –
1 (MKTCAPi,t – 1); cumulative market-adjusted returns on days t – 5 to t – 1 (ABRETi,[–5, –1]); average market-adjusted volatility on days t – 5 to t – 1 (IDIOVOLATi,[–
5, –1]); the log of Amihud’s (2002) illiquidity measure averaged over days t – 5 to t – 1 (ILLIQi,[–5, –1]); and the log of one plus the number of mainstream articles on
day t (LOG (1 + NEWS)i,t). The unit of analysis of both Panels A and B is at the firm-day level. I report t-statistics based on standard errors clustered at the firm
level in the parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.

Panel A: Relating Abnormal Returns to Fake News Coverage

Dependent Variable: ABRETi,t

All All Twitter Cascades Market Cap Institutional Ownership

Small Large Small Large Low High
(1) (2) (3) (4) (5) (6) (7) (8)
FAKECOVi,t –0.242*** –0.238 –0.212** –0.653** –0.211 –0.446*** –0.119
(–3.053) (–1.311) (–2.151) (–2.484) (–1.568) (–3.013) (–1.366)
FAKECOVi,t – 1 –0.116
(–1.514)
MKTCAPi,t – 1 –0.069 0.049 0.029 –0.050 –0.512** –0.219 –0.060 –0.061
(–0.962) (0.630) (0.418) (–0.402) (–2.478) (–1.488) (–0.609) (–0.649)
ABRETi,[–5, –1] –0.022 0.012 –0.045 0.007 –0.024 –0.016 –0.043 0.025
(–0.676) (0.911) (–0.758) (0.389) (–0.577) (–1.029) (–0.986) (1.414)
IDIOVOLATi,[–5, –1] –0.001 –0.116** 0.193 –0.158** 0.025 –0.095* 0.037 –0.085*
(–0.016) (–2.507) (1.263) (–2.250) (0.235) (–1.873) (0.326) (–1.728)
ILLIQi,[–5, –1] –0.045 0.108 0.034 0.019 0.037 –0.046 0.004 –0.079
(–0.480) (1.143) (0.284) (0.154) (0.148) (–0.471) (0.030) (–0.617)
LOG(1 + NEWS)i,t 0.004 –0.001 0.084 –0.203 –0.167 0.089 0.011 0.004
(0.049) (–0.005) (0.731) (–1.393) (–0.563) (0.867) (0.087) (0.038)

Constant Yes Yes Yes Yes Yes Yes Yes Yes

N 3,097 1,909 1,032 1,032 1,032 1,031 1,580 1,517

53
Adjusted R-squared 0.004 0.006 0.032 0.018 0.014 0.008 0.015 0.003
Continued: Idiosyncratic Volatility Illiquidity
Low High Low High
(9) (10) (11) (12)
FAKECOVi,t –0.151* –0.438** –0.228* –0.455**
(–1.685) (–2.176) (–1.737) (–2.084)
MKTCAPi,t – 1 0.009 0.171 –0.162 –0.272**
(0.095) (0.896) (–1.031) (–2.364)
ABRETi,[–5, –1] –0.033 –0.021 –0.008 –0.028
(–0.922) (–0.557) (–0.479) (–0.660)
IDIOVOLATi,[–5, –1] 0.124 0.029 –0.088 0.021
(0.376) (0.251) (–1.558) (0.197)
ILLIQi,[–5, –1] –0.061 0.259 0.000 0.174
(–0.625) (0.868) (0.002) (0.428)
LOG(1 + NEWS)i,t –0.190 0.082 0.082 –0.252
(–1.038) (0.521) (0.782) (–0.960)

Constant Yes Yes Yes Yes

N 1,034 1,031 1,033 1,032
Adjusted R-squared 0.007 0.004 0.004 0.017

54
Panel B: Relating Abnormal Turnovers to Fake News Coverage
Dependent Variable: ABTURNi,t

All All Twitter Cascades Market Cap Institutional Ownership

Small Large Small Large Low High
(1) (2) (3) (4) (5) (6) (7) (8)
FAKECOVi,t 0.042** 0.021 0.086*** 0.092** 0.016 0.066** 0.032
(2.180) (0.491) (3.253) (2.177) (0.464) (2.491) (1.243)
FAKECOVi,t – 1 0.048**
(2.420)
MKTCAPi,t – 1 0.013 0.013 –0.007 0.005 0.123*** 0.037 0.000 0.017
(0.806) (0.700) (–0.348) (0.196) (3.131) (0.986) (0.002) (0.759)
ABRETi,[–5, –1] –0.003 –0.002 –0.004 –0.004 –0.004 –0.008** –0.002 –0.007
(–1.346) (–0.603) (–1.075) (–0.992) (–1.502) (–2.013) (–0.696) (–1.485)
IDIOVOLATi,[–5, –1] –0.031*** –0.025* –0.013 –0.019 –0.014 –0.081*** –0.044*** –0.007
(–2.901) (–1.944) (–0.701) (–1.198) (–1.122) (–5.105) (–3.645) (–0.412)
ILLIQi,[–5, –1] 0.050** 0.048** 0.040 0.023 0.113*** 0.007 0.017 0.086***
(2.524) (2.079) (1.451) (0.711) (2.899) (0.285) (0.681) (2.946)
LOG(1 + NEWS)i,t 0.131*** 0.099*** 0.134*** 0.133*** 0.254*** 0.110*** 0.145*** 0.118***
(9.313) (5.655) (6.040) (5.456) (5.968) (6.729) (7.671) (5.765)

Constant Yes Yes Yes Yes Yes Yes Yes Yes

N 3,097 1,909 1,032 1,032 1,032 1,031 1,580 1,517
Adjusted R-squared 0.057 0.031 0.068 0.047 0.095 0.091 0.079 0.052

55
 56

Table 6: Real Effects of Fake News on Sales and Sales Growth

This table presents the results from estimating the real effects of fake news on sales and sales growth in a
propensity score-matched sample using OLS regressions. I match firms on the basis of the same Fama-French
49 industry group and the determinants of fake news in the quarter prior to the fake news event. The depend-
ent variable in column 1 is SALES, measured as sales scaled by lagged assets. The dependent variable in
column 2 is SALES_GROWTH, measured as the growth rate of sales over the previous quarter. TREAT is an
indicator variable that equals one if the firm is affected by fake news (“treatment”) and zero if the firm is in
a propensity score-matched sample of unaffected firms (“control”). POST is an indicator variable that equals
one if the observation is in the quarter immediately following the fake news and zero if the observation is in
the quarter immediately preceding the fake news. The definitions of other variables are in Appendix B. Both
regressions include firm fixed effects and year-quarter fixed effects. I report t-statistics based on standard
errors clustered at the firm level in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10%
levels, respectively.

Dependent Variables: SALES SALES_GROWTH

(1) (2)
TREAT × POST –0.009* (–1.669) –0.035* (–1.720)
LOG(ASSETS) –0.084*** (–3.875) 0.073 (0.653)
ROA –0.363 (–0.644) –3.529* (–1.903)
BTM –0.225 (–1.380) –0.548* (–1.905)
LOG(EMPLOYEES) 0.075*** (2.714) 0.051 (0.589)
ADVERTISING 0.432 (0.614) –1.878 (–0.844)
CSR –0.005 (–1.018) –0.029 (–1.247)
0.853*** (4.647) –0.620 (–0.583)
Firm Fixed Effects Yes Yes
Year-Quarter Fixed Effects Yes Yes
Constant Yes Yes
N and Adjusted R-squared 352 0.972 352 0.559
 57

Table 7: Companies’ Responses to Fake News

This table presents the summary statistics on companies’ responses to fake news. Panel A shows the percent-
age of fake news that companies respond to. Panel B presents the percentage of corporate responses to “pos-
itive,” “neutral,” and “negative” fake news. Panel C shows the various media channels that companies use to
respond to fake news. Panel D shows the summary statistics relating to the companies’ response time in
addressing fake news.

Panel A: Percentage of False Rumors that Companies Respond To

Companies respond to 19.68% of the rumors.

Panel B: Tone of Fake News that Firms Respond To

# of Responses/#
Tone of Rumors (%)
Positive 11.11
Neutral 37.96
Negative 19.55

Panel C: Types of Response Channels

Response Channels Freq. Percent
Social media 30 48.39
Mainstream media 18 29.03
Blogs 7 11.29
Company websites (incl. press releases) 7 11.29
Total 62 100

Panel D: Time to Respond to Fake News

Mean p10 Median p90
A. Time to Respond (in days)
Response time 13.3 0 1 2
B. Time to Respond by Response Channel (in days)
Social media 0.9 0 0 2
Mainstream media 53.4 0 1 225
 58

Table 8: Determinants of Corporate Responses: Fake News Characteristics

This table shows results from estimating which fake news triggers corporate responses using probit regres-
sions. The dependent variable in columns 1 to 4 is RESPONSE, an indicator variable that equals one if the
company responds to the fake news event and zero otherwise. The dependent variable in column 5 is RE-
SPONSE_SOCIAL, an indicator variable that equals one if the company responds to the fake news event
through social media and zero otherwise. In column 1, the variable of interest is the abnormal return on the
event day (ABRET). In column 2, the variable of interest is an indicator variable of one if the abnormal return
on the event day is negative (NEG_ABRET). Columns 3 and 4 include a set of indicator variables capturing
different categories of fake news content and sources of fake news. Intercepts are suppressed in columns
because of the full span of the indicator variables. I report t-statistics based on standard errors clustered at
the firm level in the parentheses. I also report the probability change (%) in the dependent variable induced
by either a one-standard-deviation change in the continuous independent variable or a discrete change from
0 to 1 in the dichotomous independent variable, holding other variables at their sample averages, in squared
brackets. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.

Dependent Variables: RESPONSE RESPONSE_SO-

CIAL
(1) (2) (3) (4) (5)
ABRET –0.116*
(–1.661)
[–4.675]
NEG_ABRET 0.386*
(1.898)
[10.465]
PRODUCTS_SERVICES 1.764
(1.284)
[46.744]
HUMAN_RIGHTS 1.717
(1.319)
[45.487]
OPERATIONS 0.839
(0.602)
[22.235]
EMPLOYEES 2.270*
(1.658)
[60.167]
OTHER_CATEGORIES 1.266
(0.832)
[33.543]
SOCIAL_MEDIA 2.287 0.611**
(1.556) (2.481)
[60.242] [9.055]
LOW_CREDIBILITY_WEB-
SITES 1.687
(1.244)
[44.430]
BLOGS 2.316*
(1.769)
[61.007]
OTHER_SOURCES 1.925
(1.158)
[50.702]
 59

Controls Yes Yes Yes Yes Yes

Constant Yes Yes No No Yes
N 176 176 176 176 176
Pseudo R-squared 0.107 0.113 0.133 0.130 0.146
Table 9: Effects of Corporate Disclosures and Fact-Checking Organizations on Containing Fake News Crises
This table presents the effects of corporate disclosures and fact-checking organizations on containing fake news crises. Columns 1 and 2 use probit models to
examine whether corporate disclosures reduce a company’s probability of being attacked again by fake news. The dependent variable, ATTACK, is an indicator
that equals one if the company is attacked again by fake news over the [+30, +60] window following the first attack and zero otherwise. The variable of interest,
RESPONSE_30DAYS, is an indicator with a value of one if the company responds to the fake news event within 30 days and zero otherwise. Columns 3 through 6
use OLS models to examine whether corporate disclosures and fact-checking by third parties reduce the reputation loss caused by fake news. The dependent
variable is 4FCAR[2,60] and is measured as the sum of the daily abnormal returns over the [+2, +60] window following the fake news event. The daily abnormal
return is calculated using Carhart’s (1997) four-factor model, and beta is estimated over the [–100, –41] window preceding the fake news. RESPONSE_TIME is
the number of days a company takes to respond to fake news. DEBUNK_TIME is the number of days a fact-checking organization takes to debunk the fake news.
The value is calculated as the difference between the start of the fake news and the publication date of the fact-checking article. If the fake news is fact-checked by
multiple fact-checking organizations, the earliest publication date is used. ABRET is the abnormal return on the event day. The definitions of other variables are in
Appendix B. I report t-statistics based on standard errors clustered at the firm level in the parentheses. In columns 1 and 2, I report the probability change (%) in
ATTACK induced by a discrete change in RESPONSE from 0 to 1, holding other variables at their sample averages in squared brackets. ***, **, and * denote
significance at the 1%, 5%, and 10% levels, respectively.

Probit OLS
Dependent Variables: ATTACK 4FCAR[+2, +60]
(1) (2) (3) (4) (5) (6)
RESPONSE_30DAYS –0.613* –0.556*
(–1.760) (–1.670)
[ –21.635] [–19.143]
RESPONSE_TIME –0.031*** –0.039**
(–3.883) (–2.322)
DEBUNK_TIME –0.009 –0.005
(–0.659) (–0.383)
ABRET 0.074 –0.013 2.093
(1.037) (–0.005) (1.522)
LOG(ASSETS) 0.185 0.897 1.669
(1.119) (0.284) (1.221)
ROA 14.103 25.867 229.218**
(1.472) (0.172) (2.548)
BTM 0.081 9.388 26.204***
(0.100) (0.544) (3.646)
LOG(EMPLOYEES) –0.124 1.633 0.065
(–1.023) (0.570) (0.069)
ADVERTISING 3.353 1.690 16.577
(0.571) (0.011) (0.369)

60
CSR –0.191 –15.667*** –2.130
(–1.066) (–4.097) (–1.607)
Constant Yes Yes Yes Yes Yes Yes
N 176 176 35 35 176 176
Pseudo/Adjusted R-squared 0.022 0.066 0.017 0.031 0.005 0.168

61
Appendix A: An Example of a Fact-Checking Article
I present screenshots of a fact-checking organization’s (i.e., snopes.com) examination of a corporate rumor
about Starbucks. The corporate rumor is “a woman named Shanell Rivers put blood and dog feces into various
products at a Starbucks in Atlanta.” Panel A shows snopes.com’s analysis of the rumor origin, and Panel B shows its
analyses of Starbucks’ voluntary responses to the rumor.

Panel A: Analysis of the Rumor Origin

A Starbucks in Atlanta closed a few hours early on 7 January 2018 after man-
agement received tips that an employee was placing blood, dog feces and
other contaminants into the store’s products. The #StarbucksContamination
rumor was rooted in a distasteful social media post, however, and did not cor-
respond with genuine actions from a real world Starbucks employee.

The controversy started on Sunday night after a user on the section of 4chan
posted a screenshot purportedly showing a Facebook post from a “Shanell Rivers”
in which she described various disgusting things she allegedly did to Starbucks
products:

62
 63

Panel B: Analysis of Corporate Responses

When Starbucks responded to the controversy they said that they did not employ
a woman named “Shanell Rivers” and that these posts were “created mali-

ciously”:

Starbucks posted a similar response on Twitter:

This post is completely false. Starbucks does not have a partner

(employee) by the name Shanell Rivers. We are working with lo-
cal authorities.

— Starbucks Coffee (@Starbucks) January 9, 2018

The post was most likely made up. There’s no evidence that these acts were actu-
ally carried out at a Starbucks in Atlanta and the store stated that they do not
employ a woman by this name
 64

Appendix B: Variable Definitions

ASSETS Total assets in the most current quarterly financial statement reported prior to quar-
ter t (source: Compustat fundamental quarterly file).
ROA Ratio of earnings before extraordinary items to lagged total assets in most current
quarterly financial statement reported prior to quarter t (source: Compustat funda-
mental quarterly file).
RET Cumulative daily stock returns over quarter t – 1 (source: CRSP daily stock file).
BTM Book value of a firm’s common equity divided by the market value of the firm’s
equity (sources: Compustat fundamental quarterly file and CRSP daily stock file).
BTM is measured using the most current quarterly financial statement reported prior
to quarter t. I set BTM as missing if the value of book equity is negative.
VOLATILITY Standard deviation of daily stock returns over quarter t – 1 (source: CRSP daily
stock file). I follow Shumway (1997) and adjust stock returns for delisting based on
the reason the stock was delisted.
TURNOVER Average daily stock turnover over quarter t – 1. The daily stock turnover is calcu-
lated as the ratio of trading volume to the number of shares outstanding (source:
CRSP daily stock file).
BIDASK I use daily closing bid and ask data to calculate 100 × (bid – ask)/[(bid + ask)/2] and
then average one quarter’s worth of daily data over quarter t – 1 (source: CRSP daily
stock file).
ADVERTISING Ratio between advertisement expense and sales in the most current annual financial
statement reported prior to quarter t. I set advertisement expenditure to zero if it is
missing in Compustat fundamental annual file.
EMPLOYEES Number of people employed by a company and its consolidated subsidiaries in the
most current annual financial statement reported prior to quarter t (represented in
thousands). Data are from Compustat fundamental annual file.
NEWS Number of mainstream media articles in quarter t – 1 (source: RavenPack Dow
Jones Edition). I only include full-length news articles with a relevance score of 100,
which indicates that a firm plays a key role in the news story and is considered highly
relevant to the underlying story. I set NEWS to zero if it is missing in RavenPack.
CSR Sum of (#strengths – #concerns) over seven categories: community, diversity, em-
ployee relations, environment, human rights, product, and corporate governance
(source: MSCI ESG Stats). #strengths (#concerns) is the number of strengths (con-
cerns) for each category divided by the maximum number of strengths (concerns)
possible for that category-year. #strengths (#concerns) is measured using the most
current CSR information prior to quarter t.
SHORTINT Number of shares held short in each firm-month scaled by the firm’s total number
of shares outstanding (source: Compustat supplemental short interest file). I average
these monthly numbers over quarter t – 1.
ANALYSTS Number of analysts following a firm in quarter t – 1. For firm-quarters with no ana-
lysts in I/B/E/S, I set ANALYSTS to zero. I only include analysts who issue at least
one forecast 90 days before the earnings announcement date.
HHI Industry Herfindahl-Hirschman index is measured as the sum of squared market
shares in an industry-quarter. Market shares are computed from Compustat funda-
mental quarterly files based on a firms’ sales. Industry classification is based on
three-digit SIC code.
REPUBLICAN Ratio of the company’s political action committee (PAC) contributions to Republi-
can candidates over the company’s total PAC contributions to both Republican and
Democratic candidates. REPUBLICAN is measured using the most current year
prior to quarter t. The data on PAC contributions come from the Federal Election
Commission’s (FEC) website (www.fec.gov). I set REPUBLICAN to 0.5 if data is
missing on the FEC website.
PAST_TARGET An indicator of one if the company has been targeted by fake news in the previous
quarter, and zero otherwise.
 Internet Appendix to:

Corporate Fake News on Social Media

In the Internet Appendix, I present additional evidence to support the findings of this

paper. In Table A1, I show my methodology of classifying the fake news content into nine

mutually exclusive categories. Table A2 shows the Szymkiewicz-Simpson overlap coeffi-

cient between the lists of rumors examined by fact-checking organizations. In Table A3, I

show the industry concentration of target firms and non-target S&P firms. Table A4 pre-

sents the results from examining which firm characteristics determine the targeting and

spreading of fake news in an alternative sample. In Table A5, I present the result from

estimating the relation between abnormal return on the event day and the tone of fake news.

Table A6 shows results from examining which firm characteristics determine corporate

responses to fake news.

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 66

Table A1: The Methodology of Classifying Fake News Content

This table shows the detailed methodology of classifying fake news content into nine mutually exclusive
categories, namely “community,” “employees,” “environment,” “governance,” “human rights,” “operations,”
and “products and services.”

Community
Local economic and social infrastructure development (healthcare, education, public facilities, and trans-
portation);
Support for or discrimination against the military (veterans) or police.
Employees
Union relations;
Health and safety of a firm’s employees;
Firing and hiring employees (top executives and board of directors are not included);
Compensation of employees (if the article is about the CEO-employee pay ratio, then it belongs to the
governance category).
Environment
Climate change, natural resources, and pollution and waste.
Governance
Compensation practices (equity ownership) of top executives and board of directors;
Change of top executives and board of directors;
Misconduct or controversial manners of top executives and board of directors;
Accounting quality (fraud).
Human rights
Support for or discrimination against LGBT, racial and ethnic minorities, refugees and migrants, persons
with a disability, women, children, freedom of religion, freedom of expression, and censorship;
Involvement in human rights-related legal cases; widespread or egregious complicity in killings, physi-
cal abuse, or violation of other rights; resistance to improved practices; operations in countries with poor
human rights records; criticism by NGOs or other third-party observers;
Operations:
Mergers and acquisitions;
Earnings, sales, tax, and stock performance;
Business operations (opening and closing plants; changing business locations or headquarters; opera-
tional plans; competitors; bankruptcy).
Products and services
Product or service safety and quality (product recall; third-party ratings or criticism on products);
Marketing and advertising (false or improper marketing or advertising; marketing targeted at disadvan-
taged groups);
Customer relations (involvement in customer-related legal cases; predatory lending; discrimination;
fraud or unfair treatment);
Privacy and data security (data breaches).
Table A2: Szymkiewicz-Simpson Overlap Coefficient for Each Pair of Organizations
This table shows the Szymkiewicz-Simpson overlap coefficient between the lists of rumors examined by fact-checking organizations. The Szymkiewicz-Simpson
overlap coefficient is defined as the interaction (number of same rumors) between two lists examined by fact-checking organizations divided by the number of
rumors in the smaller list.

snopes.com politifact.com truthorfiction.com hoax-slayer.net factcheck.org

snopes.com 100% 25% 40% 41% 44%
politifact.com 100% 7% 6% 50%
truthorfiction.com 100% 35% 13%
hoax-slayer.net 100% 0%
factcheck.org 100%

67
 68

Table A3: Industry Concentration of Target Firms versus Non-Target Firms

This table shows the Fama-French 12 industry concentration of target and non-target S&P 500 companies.

Fama-French 12 Industry Target Firms Non-Target Firms

Freq. Percent Freq. Percent
Wholesale, retail, and some services 12 25.00 43 7.86
Consumer nondurables 10 20.83 28 5.12
Other 6 12.50 56 10.24
Telephone and television transmission 5 10.42 13 2.38
Business equipment 4 8.33 96 17.55
Consumer durables 3 6.25 10 1.83
Manufacturing 3 6.25 48 8.78
Healthcare, medical equipment, and drug 2 4.17 48 8.78
Oil, gas, and coal extraction and products 2 4.17 32 5.85
Chemicals and allied products 1 2.08 22 4.02
Finance 0 0 116 21.21
Utilities 0 0 35 6.40
Total 48 100 547 100
 69

Table A4: Determinants of Targeting and Spreading of Fake New in an Alternative Sample
Columns 1 to 3 report results from probit regression analyses of the likelihood of being targeted by fake news
in an alternative sample, where fake news is defined as all articles published by 121 low-credibility websites.
In column 1, the dependent variable is an indicator that equals one if the company was targeted at least once
by fake news during the sample period and zero otherwise. In columns 2 and 3, the dependent variable is an
indicator that equals one if the firm was targeted by fake news in the current quarter. In column 3, I further
include an indicator variable that equals one if the company has been targeted by fake news in the previous
quarter as a covariate. Column 4 reports the result from examining which firm characteristics determine the
spreading of fake news in the alternative sample using an OLS regression. The dependent variable is the total
number of tweets about fake news articles published in a given quarter. The unit of analysis is at the firm-
quarter level. Variable definitions are in Appendix B. I report t-statistics based on standard errors clustered
at the firm level in the parentheses. ***, **, and * denote significant levels at 1%, 5%, and 10%, respectively.

Dependent Variables: Indicator of Be- Indicator of Being Tar- Total Number of

ing Targeted geted in the Current Tweets and Re-
Quarter tweets in the Cur-
rent Quarter
(1) (2) (3) (4)
LOG(ASSETS) 0.234*** 0.320*** 0.282*** 0.503***
(3.152) (6.668) (6.291) (6.028)
ROA 2.793 0.244 –0.365 5.168**
(1.267) (0.143) (–0.234) (2.059)
RET –0.071 –0.069 –0.044 –0.196
(–0.481) (–0.385) (–0.249) (–1.107)
BTM –0.506** –0.718*** –0.656*** –0.971***
(–2.172) (–4.228) (–4.398) (–4.191)
VOLATILITY 0.287*** –0.024 –0.087 –0.012
(2.952) (–0.370) (–1.438) (–0.149)
LOG(0.00255 + TURNO-
VER) 0.007 0.195* 0.188* 0.179
(0.047) (1.796) (1.884) (1.050)
BIDASK –0.926 1.001 2.104 9.404**
(–0.212) (0.355) (0.831) (2.420)
LOG(EMPLOYEES) 0.279*** 0.307*** 0.255*** 0.213***
(4.731) (7.852) (6.985) (3.989)
ADVERTISING 16.572*** 12.132*** 10.363*** 14.139***
(5.089) (6.995) (6.404) (4.687)
LOG(1 + NEWS) 0.090** 0.156*** 0.149*** 0.253***
(2.299) (4.340) (4.561) (4.993)
CSR –0.012 –0.026 –0.044 –0.094
(–0.222) (–0.688) (–1.263) (–1.605)
SHORTINT –0.059 0.536 0.578* 0.325
(–0.120) (1.495) (1.793) (0.820)
LOG(1 + ANALYSTS) 0.132* 0.118** 0.104** 0.096*
(1.920) (2.481) (2.323) (1.873)
IND_HHI –0.069 –0.048 –0.042 0.090
(–0.296) (–0.339) (–0.336) (0.364)
REPUBLICAN 0.036 0.042 0.137 –0.498**
(0.101) (0.184) (0.690) (–2.026)
PAST_TARGET 0.631***
(9.629)

Constant Yes Yes Yes Yes

N 6,988 6,988 6,988 6,988
Pseudo/Adjusted R-squared 0.203 0.262 0.291 0.278
 70

Table A5: Relating Abnormal Returns to the Tone of Fake News

This table shows the result from examining the relation between abnormal return on the event day and fake
news tone. The dependent variable, ABRET, is the abnormal return on the day of the fake news event. The
abnormal return is calculated using a market model where beta is estimated over the [–100, –41] window
preceding the fake news. POSITIVE, NEUTRAL, and NEGATIVE are three indicators of whether the tone of
the fake news is “positive,” “neutral,” or “negative,” respectively. The tone of fake news is classified based
on whether the fake news is to praise or disparage a company. Intercepts are suppressed in columns because
of the full span of the indicator variables. I report t-statistics based on standard errors clustered at the firm
level in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.

Dependent Variable: ABRET

POSITIVE 0.156
–0.368
NEUTRAL –0.107
(–0.529)
NEGATIVE –0.222**
(–2.291)

Constant No
N 176
Adjusted R-squared 0.010
Table A6: Determinants of Corporate Responses: Firm Characteristics
This table shows both univariate and probit analyses of which firm characteristics determine corporate responses to fake news. The sample only includes firms that
are targeted by fake news. Panel A reports the characteristics of responding companies in columns 1 to 3 and non-responding companies in columns 4 to 6. The
last three columns report the difference in means, with the corresponding t-statistic and the Wilcoxon signed-rank statistic (which is asymptotically normal) for the
difference in medians. Panel B reports results from probit regression analyses. The dependent variable is an indicator that equals one if the company at least once
responded to fake news during the sample period and zero otherwise. The unit of analysis is at the firm-quarter level. Variable definitions are in Appendix B. I
report t-statistics based on standard errors clustered at the firm level in the parentheses. ***, **, and * denote significant levels at 1%, 5%, and 10%, respectively.

Panel A: Characteristics of Responding Firms versus Non-Responding Firms: Univariate Analysis

Response (N = 209) No-Response (N = 303) Diff. (Target – Non-Target)
Mean Median St.Dev Mean Median St.Dev Diff. in Means t-stat of Diff. Wilcoxon
(1) (2) (3) (4) (5) (6) (7) (8) (9)
ASSETS ($billion) 104.287 65.764 14,400.26 84.755 35.185 11,831.37 19.53 1.914* 3.476***
ROA 0.022 0.019 0.000 0.020 0.018 0.000 0.003 1.519 1.375
RET 0.046 0.044 0.019 0.018 0.018 0.014 0.028 2.409** 2.160**
BTM 0.314 0.275 0.052 0.280 0.178 0.061 0.034 1.566 2.368**
VOLATILITY 1.574 1.453 0.503 1.475 1.369 0.402 0.099 1.657* 1.399
TURNOVER (%) 1.000 0.736 0.554 0.814 0.743 0.217 0.186 3.472*** 2.003**
BIDASK 0.021 0.018 0.000 0.025 0.019 0.000 –0.004 –2.549** –1.267
EMPLOYEES (k) 148.9 98.8 16,959.06 112.3 73.1 11,506.53 36.55 3.469*** 3.490***
ADVERTISING 0.035 0.029 0.001 0.037 0.025 0.001 –0.002 –0.703 –0.906
NEWS 54.770 49 1,628.95 33.934 26 820.082 20.836 6.833*** 5.488***
CSR 1.172 1.129 0.599 1.226 1.129 0.920 –0.054 –0.673 0.167
SHORTINT 0.058 0.034 0.005 0.095 0.028 0.026 –0.037 –3.147*** –0.104
ANALYSTS 17.512 16 74.165 13.310 13 36.903 4.202 6.474*** 5.112***
HHI 0.377 0.290 0.082 0.542 0.423 0.098 –0.165 –6.067*** –6.670***
REPUBLICAN 0.524 0.500 0.004 0.576 0.523 0.025 –0.052 –4.495*** –3.113***

71
 72

Panel B: Characteristics of Responding Firms: Probit Analysis

Dependent Variable: Indicator of Responding to Fake
News
LOG(ASSETS) 0.376 (1.377)
ROA 0.806 (0.114)
RET 1.012*** (3.021)
BTM 0.218 (0.149)
VOLATILITY –0.189 (–0.640)
LOG(0.00255 + TURNOVER) 1.405** (2.055)
BIDASK –32.828** (–2.056)
LOG(EMPLOYEES) 0.100 (0.497)
ADVERTISING 8.123 (1.197)
LOG(1 + NEWS) 0.023 (0.114)
CSR –0.137 (–0.784)
SHORTINT –1.473 (–0.842)
LOG(1 + ANALYSTS) 0.276 (1.484)
HHI –1.833** (–2.346)
REPUBLICAN –2.822*** (–2.604)

Constant Yes
N and Pseudo R-squared 512 0.262