The Value of Visibility

Abstract

We analyze the relation between firm visibility and stock returns using comprehensive news coverage of U.S. firms. Carefully controlling for firm characteristics, we find that persistently higher levels of firm visibility predict higher returns. Visibility also predicts higher sales and profitability growth, as well as improvements in corporate governance like, for example, enhanced performance-induced CEO turnover. The visibility return premium is concentrated around earnings announcements. Instrumental variable regressions support a causal interpretation of the visibility-return association. Overall, the evidence is consistent with visibility creating value through a monitoring and advertising channel, while investors underprice the benefits of firm visibility.

Keywords: Media Coverage, Visibility, Returns, Corporate Governance, Profitability

JEL Classification: G12, G14