Research on the impact of government on firms has long attracted the attention of scholars in management. Although conforming to institutional pressure exerted by the government could bring political legitimacy for firms, extant research overlooked the process of firms perceiving institutional pressure from the government. In this study, I argue that state media serves as the mouthpiece of the government and exerts institutional pressure on firms’ strategies. Specifically, the negative sentiment of state media coverage prompts firms' strategic change, whereas the positive sentiment of state media coverage reduces firms’ strategic change. The impact of the negative sentiment is strengthened by the degree of state ownership. In the context of China, I find empirical support for my hypothe...[ Read more ]

Research on the impact of government on firms has long attracted the attention of scholars in management. Although conforming to institutional pressure exerted by the government could bring political legitimacy for firms, extant research overlooked the process of firms perceiving institutional pressure from the government. In this study, I argue that state media serves as the mouthpiece of the government and exerts institutional pressure on firms’ strategies. Specifically, the negative sentiment of state media coverage prompts firms' strategic change, whereas the positive sentiment of state media coverage reduces firms’ strategic change. The impact of the negative sentiment is strengthened by the degree of state ownership. In the context of China, I find empirical support for my hypotheses. This study makes contributions to the institutional theory by identifying how political legitimacy influences the risk-taking actions of firms. In the meantime, this research contributes to the media research in the management field and unpacks the mechanisms of how state media influences firms’ actions.