Abstract
The media can impose reputational costs on firms because of its important role as an information intermediary and its ability to negatively slant coverage. We exploit a quasi-natural experiment that holds constant the information event across firms, but varies the availability of a major news outlet in local markets. We find that firms subject to the threat of slanted coverage suppress the release of negative information before the event and release it subsequently. Our results are consistent with theory on the active role firms can play in managing their reputational capital through anticipatory actions to avoid negative media coverage.
Highlights
The media plays an important role in financial markets by processing and disseminating information about firms
15 While Fox News Channel (FNC) was available to only 17% of the U.S population by June 2000, about 50% of our sample firms are headquartered in areas with FNC availability
We maintain that firms attempt to minimize the costs of bad news revelation as such news has the potential to decrease firms’ reputational capital
Summary
The media plays an important role in financial markets by processing and disseminating information about firms. These studies maintain that because local stakeholders encounter lower costs in communicating with managers, firms are responsive to the needs of stakeholders in their local environment In support of this assumption, we conduct a detailed review of transcripts for a crosssection of the most popular FNC shows (the “Cavuto Business Report”, “Fox News Sunday”, “Special Report with Brit Hume”, and “The O'Reilly Factor”), and compile a list of all firms discussed or interviewed on these shows in the year 2000. We report descriptive information and the party cheaply They could have gotten even more money, because of the potential importance of their decisions to the affected business.” 7 Across all of our tests outlined, we find no evidence that Democratic firms without FNC availability suppress and subsequently release negative financial information. We believe evidence of FNC’s local bias in combination with a discussion of the catering incentives that could have given rise to this bias helps to support our expectations
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