Price of Publicity

Abstract:     
Board members with mass media experience influence firms’ media coverage and media slant. Compared with control firms, after accounting for the endogeneity of having media experts on board using geographic variation in the location of media experts as an instrument, we find that firms with a media expert receive 40% more media coverage. Furthermore, articles written about them include 25% fewer negative words compared with articles on control firms. Press releases of firms with media experts are 9% more likely to be followed by media coverage within five days of press release, suggesting that the board members with media expertise help hire better public/investor relation firms. Although firms with media experts enjoy these benefits, they suffer from an illiquidity discount of 20 basis points per month after they hire a media expert. These findings not only highlight the importance of composition of board of directors as a determinant of disclosure mechanism but also identify a previously overlooked determinant of media bias.

Number of Pages in PDF File: 32

Keywords: Media, Investor Relations, Connections, Corporate Board

JEL Classification: G10, G12, G14, G34, M41, M43, L82

working papers series