Do Chinese Social Media Correct the Optimistic Bias of Traditional Media?

This paper examines whether, in an autocratic regime such as China, social media that rely on the wisdom of crowds correct the bias of state-controlled traditional media by supplying less optimistically biased information to the market. Using a comprehensive sample of Chinese newsppaper corporate news articles and posts of an online stock forum, East Guba, from 2009 to 2016, we find that the positive association of the tone of newspapers and East Guba of the same firm on the same day is significantly reduced when newspapers are expected to exhibit more optimistic bias, consistent with our conjecture that social media plays a role in correcting the bias of traditional media. Further analyses show that political factors such as state ownership of the firms being covered and the political sensitivity of the periods during which the articles are posted shape East Guba’s monitoring role in correcting the newspapers’ bias. Finally, the stock return results also support the conjecture that social media supplies information that serves as a benchmark to delineate the bias of traditional media. When the tone of traditional media deviates positively from that of social media, the stock return response to traditional media’s articles is significantly attenuated, but we do not find any significant change in stock return response to social media’s posts when their tone deviates from that of traditional media.