The Impact of Fake News on Company Value: Tesla and Galena Analysis

This thesis investigates the impact of fake news on company value, focusing on the cases of Tesla and Galena Biopharma. It begins by establishing the increasing prevalence of fake news due to social media and technological advancements, highlighting its potential social, political, and economic impacts. The research reviews existing literature on the subject, analyzing specific instances of fake news and their effects on financial markets. The study explores the motives behind the creation and dissemination of fake news, emphasizing the importance of combating misinformation. Ultimately, the thesis aims to provide insights into how companies can proactively and reactively mitigate the risks associated with fake news in the financial world, considering the role of regulatory bodies like the SEC and the need for fair financial markets.

University of Tennessee, KnoxvilleUniversity of Tennessee, Knoxville
TRACE: Tennessee Research and CreativeTRACE: Tennessee Research and Creative
ExchangeExchange
Chancellor’s Honors Program Projects Supervised Undergraduate Student Research
and Creative Work
12-2020
The Impact of Fake News on Company Value: Evidence fromThe Impact of Fake News on Company Value: Evidence from
Tesla and Galena BiopharmaTesla and Galena Biopharma
David D. Parsons
University of Tennessee, Knoxville, [e-mail]
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Parsons, David D., "The Impact of Fake News on Company Value: Evidence from Tesla and Galena
Biopharma" (2020).Chancellor’s Honors Program Projects.
https://trace.tennessee.edu/utk_chanhonoproj/2328
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The Impact of Fake News on Company Value: Evidence from Tesla and Galena Biopharm
David Parsons
Advisor: Dr. Roy Schmardebeck
Chancellor’s Honors Program Thesis

Table of Contents:
I. Abstract 1-2
II. Introduction 3-4
III. Review of Literature 5-11
IV. Case Analysis 11-17
V. Analysis of Research 18-21
VI. Conclusion 22-23
VII. References 24

1
Abstract:In recent years, the dissemination of disinformation with an intent to deceive or
mislead (i.e., fake news) has become more prevalent. Fake news is usually associated wit
fabrications surrounding factual or relevant information trying to be framed as either muc
positive or much more negative than the reality of the truth would present. People often h
intent and are looking for personal gain in some way, as their purpose for writing the misle
or false information and releasing it into the public. Over the last few years, the world has
what feels like an explosion of fake news due to social media and technological advancem
enabling news to be spread and accessed in a whole new way with no limits as to the diffe
areas fake news is attempting to invade and affect. Fake news can potentially impact the
political, and economic aspects of our world, and as the frequency of fake news continues
increase, it propels fake news more into the spotlight of public relevancy. The issue of fak
intentionally inaccurate news existing in the world has been around for ages, as many gro
people have tried to mislead or deceive others using misinformation. However, as the wor
becomes more and more interconnected and the accessibility to news becomes easier, it
the potential effects and risks associated with fake news being spread. This paper is desig
analyze the risks and effects that can come from fake news in the business world and asse
big an impact or significance it can play in the performance of the financial markets.
To better understand the impact of fake news on company value, it is essential to
understand the motives behind it while also considering the importance of fighting back a
fake news and refuting misinformation. With the vast increase in the amount of news avai
the relaxing of journalistic standards on what should be published, the shortening of the n
cycle, and the development of new platforms for spreading news, fake news is now more
prominent. In addition, these factors also raise the possibility that fake news can have a

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substantial impact on company value. Investors throughout the world now have to properl
manage the threat of fake news and be constantly on guard against whether false or misle
information will alter or affect their everyday decisions in their work.
Creating and spreading inaccurate information has been around for centuries, and h
always been an issue that people have had to deal with throughout time. The reason for th
increased frequency and reach of fake news centers around how our news world has deve
over time through technological advancements. Now people are able to access and share
real-time throughout their daily lives basically no matter their location. This allows those
spreading fake news to extend their reach and cause more damage. Social media has also
a platform for everyone to output news that has the potential to now go viral and reach m
of eyes. This new access to platforms is a positive development in a lot of ways for the wo
people, but it does come with unintended consequences such as enabling the quantity and
potential reach of fake news to increase drastically. Another issue that leads from this new
at hand, is how people operating within financial markets can detect fake news in a timely
manner while also being sure that they are in no way relying or making decisions depende
the news with ill intent or fabrications. This thesis aims to dive into and explain the motive
behind the new wave of fake news by analyzing specific examples while then analyzing ho
much damage could potentially be caused by successful fake news attempts. It is then ess
analyze the long term consequences that can result from fake news while also considering
companies and people can better combat fake news and look to quickly ward off potential
through proper responses and resulting actions. There is a need to tackle the complexity o
current issue of fake news in the financial world and consider the role it will play in future
while looking at what precautionary and reactionary decisions need to be made.

3
Introduction:
The development of social media platforms, as well as many other technological
advancements in the news world, has made the world much more interconnected and has
significantly changed the way financial information is accessed and used. The enhanced s
and quantity of news available has changed the climate for news in the financial world and
caused all people, including professionals, to adjust their methods of operation in financia
markets. There have been many benefits stem from the development of news and media
platforms such as lower information costs and less information asymmetry, but drawbacks
risks have also been added to the mix. These negatives mainly derive from the increased
prevalence of fake news which now has a better chance of gaining traction and spreading
it is proven to be inaccurate. Fake news is at more of a disadvantage than real, accurate n
when it comes to the likelihood it is widely spread because anyone can publish false or
misleading reports using social media.
Fake news is not a new tactic altogether, but as it becomes more difficult to detect f
news in real-time and stop the spreading of the misinformation. It was not long ago that m
newspaper publications actually went to print with headlines that read that the wrong per
Thomas Dewey, had won the presidential election due to a confusion in tallying who won,
resulting in some people being misinformed for days before figuring out the real truth and
the corrected results. Harry Truman was the actual winner and went on to become preside
have the infamous photo taken of him holding a newspaper that read “Dewey Defeats Tru
This is not an example of fake news that was intentional but still displays how much has c
in the spreading and availability of news which is why more people now have the ability to
potentially create fake news stories that can cause consequences. Many professionals hav

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aware of this evolving threat for some time which is why there is an abundance of researc
examples being written in academic journals and other pieces of writing in today’s world.
paper, the study will analyze the potential impact fake news can have while also detailing
other factors in fake news such as how it can be detected and combatted in the financial m
to mitigate the risk of deceitful news sources. The actual impact of fake news is something
tough to measure in financial markets and investors’ reliance and reaction to fake news is
well documented. As time progresses and fake news creators look to create a more substa
impact on the markets, it will fall onto regulatory bodies such as the Securities and Exchan
Commission (SEC) and industry professionals to be aware and alert of potential reliance an
usage of fake news, and be ready to respond with proper punishments and repercussions
dissuade potential fake news creators in the business world to strive for fair financial mark
This is why this issue has become such a popular and debated topic currently which
led to many studies in this field. The research and studies that exist on fake news are not
aligned, and the overall narrative is disagreed upon by many researchers which is why thi
focuses on a broad range of studies completed to attempt to touch on multiple narratives
opinions of fake news in today’s financial world In this paper, I first perform an overview o
academic research related to fake news, and then move into analyzing specific cases and
instances of fake news considering the potential main causes and effects of each situation
paper will then shift into an overall analysis of the current climate of fake news and lays o
conclusions drawn from the research on how companies can best take preventive and rea
actions to mitigate the potential impact fake news can generate in the financial markets.

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Review of Literature:
This section outlines existing research and provides evidence of the impact of fake n
This paper draws from many different sources of information to provide context and will g
further detail on the cases and examples analyzed for the purpose of this research paper.
have been extensive discussions on fake news in the political world in current times as mo
people have read about the potential Russian interference in the 2016 US presidential ele
and how fake news was a tactic used on Facebook to potentially alter opinions. What is
discussed less, is the potential for financial effects that can stem from fake news. Just in th
example mentioned alone, it is easy to see the potential financial threat of fake news as a
analyst was cited to have described the news becoming public that Russia used Facebook
spread of misinformation on the 2016 election as, “the straw that broke the camel’s back,
led to a 4.5% decrease in Facebook’s stock price on a Monday of trading (Deagon 2017).
an example of fake news reaching the financial market and playing a role that is not warra
start with this example to show the connection between the more talked about political as
fake news and how it can lead to financial repercussions.
There are plenty of other examples that are not politically derived where instances c
seen of fake news playing a role in financial markets. A J.P. Morgan Chase quant, Marko
Kolanovic, supports the idea of fake news having a negative impact in the financial world
stresses the potential threat. He describes fake news as to blame for the increased volatil
markets and cites political groups, analysts and others as “amplifying negative headlines
discord and erode faith in markets” (Son 2018). He is not alone in his blaming of fake new
many researchers are also supporting the claim of the importance fake news has played in

6
specific examples of financial markets being swayed. This thesis will look at more specific
examples that fall under this category found in the research for this paper.
The financial markets as a whole can be greatly altered if a fake news story gains en
traction and is widely spread and believed, which causes the potential for a great threat. T
been evident all the way back to 2013 when the official Associated Press Twitter account
tweeted about two explosions injuring President Barack Obama. In minutes over $130 billi
stock value was lost, yet soon after it was realized that the account had been hacked (Che
2018). This demonstrates the amount of damage that can be done with fake news that be
widely believed right upon creation.
As the news media climate has evolved over recent years and the speed and freque
news is stressed more than the validity and accuracy of that news, trends are developing
there is a lower initial instinct to distrust information or be skeptical even though most peo
aware of the existence of fake news. However, this is a bit of a unique example as in this c
reputation of the Associated Press itself contributed to the fake news reach rather than it
to spread and reach consumers on its own.
An example of another platform being manipulated to spread fake news is discussed
academic journal where they tackle fake news articles uploaded to the website Seeking Al
this case, the issue is that the website’s editors are not able to identify fake news articles.
SEC labeled many different articles as false or inaccurate saying that they were uploaded
the intent to mislead and drive a stock price in a certain direction. There were other sites
fake news, but the SEC claimed the vast majority were being uploaded on Seeking Alpha w
the intention of affecting the markets in their favor. The journal outlines that after their stu
they were able to conclude that fake news articles generated 83.4% more-page views tha

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legitimate articles. The study also came to the conclusion that the attempted use of fake n
this website resulted in “widespread implications” in the financial markets in the short ter
(Clarke et al 2019). The academic journal also looks at social media at the effects it can ha
exacerbating or enabling the spread of fake news. The paper stresses the criticisms social
platforms have faced in dealing with fake news and even sometimes being accused of pro
articles that are later found to be false or misleading. This will be a controversial topic for
media in the coming years as people look for who to blame for the spreading of news inte
be manipulative. The journal goes onto to later say that their findings would be useful to s
media platforms to draw from and institute a machine learning approach in attempting to
properly identify and then handle fake news (Clarke et al 2019). If social media platforms
successfully implement technology that will accurately identify fake news posts, then this
go a long way in raising their reputation and putting themselves in a safer position to stay
the public light for spreading misleading news.
Marina Niessner (2019) also touches on the event discussed above in a Yale Insights
publication. The writer outlines how the SEC has gone on record to announce that they are
of PR firms paying writers to write positive pieces on their companies and publish them on
investment websites to aid their stock price (Niessner). This is a clear example of manipul
and using fake news for personal gain for companies which opens more questions and new
issues. This puts a premium on detecting fake news and the need for developing technolo
the capability to recognize and alert people about potentially fake news with a motive. In
Yale Insight article, Marina Niessner continues to discuss fake news as she details other
consequences from the use of fake news. She is quoted as writing, “The study suggests th

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news comes with a large cost not just for financial markets but for society in general. A lac
trust in real news is a big problem.”
It is easy to see how fake news finding its way into news sources starts to blur the li
the validity in news and starts to make consumers distrust and resent certain news outlets
in general. This has many implications as people begin to struggle with what sources to tr
where to find information that is acceptable on which to base important financial decisions
Pump and dump schemes are not new to the financial world, but as fake news grows and
becomes harder to detect, the effectiveness of these schemes is increasingly becoming a
problem . Dating back to 2015, there is another example outlined in the Washington Post
the SEC charged a Scottish Trader with securities fraud for false tweets about a semicondu
manufacturer and a medical research firm that were designed to cause sharp drops in the
companies’ stock price and in return making the individual tweeting the false tweets mone
similar outcome is also detailed in the article where a Canadian couple used their website
falsely inflate stock prices resulting in them making $2.4 million (Ferraro et al 2019). Exam
like this are in abundance in today’s world as so many people now have the potential to h
platform where they can spread a message.
This is an empowering feature of news media, but it is easy to see how this has tran
to so many problems and led to so much manipulation of markets. An academic journal in
North American Journal of Economics and Finance performed a whole study focusing on th
effects of fake news through hoaxes used to manipulate Twitter’s stock price and found ve
telling information. Not only did the hoaxes affect the price, but the paper concludes that
traders aware of the hoax even adapted their work and preferred to trade in equity over o

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markets. The paper continues writing, “This result has implications for isolating informed t
around actual news events (Brigda et al 2017).
This is not the only example of someone stressing the implications of fake news as i
academic piece titled “Fake News: Evidence from Financial Markets” the writers’ detail ho
their study led to their conclusion that fake news also increases the abnormal trading volu
and changes stock prices temporarily, especially for small firms. This then had a “significa
spillover” effect to all news as fake and true news were both now met with distrust on plat
found with fake news (Kogan et al 2019). This makes sense that consumers would start to
develop distrust with news sources, but this brings about tougher conditions for news outl
Fake news, as examples have shown, can be hard to detect in real-time and as people fail
detect it when it occurs, it only furthers the deterioration of the relationship between cons
and news outlets. This makes it much harder to operate in financial markets and causes g
concern moving forward. The academic journal also discusses the impact social media and
forms of newer developing news platforms has made on fake news saying, “With the explo
of largely unmonitored shared information platforms, such as social media, blogs, and oth
crowd-sourced content, the potential influence of fake and biased news is a growing conce
(Kogan et al 2019). This ties in with almost all the research in this study as the effect socia
media and the changing news platforms has on the potential for misleading news is discus
throughout any conversations surrounding fake news in modern times.
The article continues on to discuss social media referencing the problems they have
they want to flag and make people aware of fake news on the platforms. It is a very delica
balance between shutting down the spreading of false stories on social media and limiting
someone’s free speech and use of the platform. This brings many issues into play with how