When the Local Newspaper Leaves Town: The Effects of Local Newspaper Closures on Corporate Misconduct

Abstract

We examine whether the local press is an effective monitor of corporate misconduct. Specifically, we study the effects of local newspaper closures on violations by local facilities of publicly listed firms. After a local newspaper closure, local facilities increase violations by 1.1% and penalties by 15.2%, indicating that the closures reduce firm monitoring by the press. This effect is not driven by the underlying economic conditions, the underlying local fraud environment, or the underlying firm conditions. Taken together, our findings indicate that local newspapers are an important monitor of firms’ misconduct.

Keywords: corporate misconduct, local newspapers, media coverage

JEL Classification: M40, M41, M46