Good News is Endogenous

Abstract:     
Corporate board members with mass media experience (e.g. Rupert Murdoch) influence the firm’s press coverage. Media coverage increases by more than 10% after hiring media experts. Compared with control firms, firms with a media expert on the board have their good news receive more media coverage. The effect of media experts on asymmetric coverage of performance is more pronounced outside of earnings announcement periods. This suggests that media resist attempts to change their coverage for reputational reasons and/or, in the absence of earnings news, media outlets rely on information sources that are likely to be managed by firms. I show evidence that these firms suffer from an illiquidity discount of 120 to 300 basis points per year after they hire a media expert, consistent with the argument that uncertainty about the lack/abundance of information is uninformative for valuation purposes.

Keywords: Media, connections, corporate board, liquidity premium

JEL Classifications: G10, G34, L82

Working Paper Series