Selective Publicity and Stock Prices

Abstract

I examine how media coverage of a company’s good and bad news affects the stock price response, by looking at the effect of investor relations (IR) firms. I find that IR firms ‘spin’ their clients’ news by generating more media coverage of positive press releases than negative press releases. This spin increases announcement returns. Around earnings announcements however, IR firms cannot spin the news, and IR firm clients’ returns are significantly lower. This is consistent with positive media coverage increasing investor expectations, creating disappointment around hard earnings information. Using reporter connections and geographical links to newspapers, I argue that IR firms are causally affecting both media coverage and returns.

Keywords: Investor Relations, Media, Asset Pricing, Announcement Returns

JEL Classification: G12, G14, M37