Does Appellate Precedent Matter? Stock Price Responses to Appellate Court Decisions of FCC Actions

Abstract

This study tests the effects of federal appellate court decisions of Federal Communications Commission (FCC) actions on stock prices using differences-in-differences (DID) and an instrumental variables approach. This study exploits the random assignment of appellate judges to three-judge panels and the fact that a judge’s (1) party affiliation and (2) race predict outcomes in appellate court decisions of FCC actions to instrument for anti-industry decisions, which favor the public interest. This instrumental variables approach demonstrates a causal relationship between appellate court decisions of FCC actions and changes in stock prices of media firms relative to the stock prices of non-media firms.

The differences-in-differences (DID) analysis shows that federal appellate court decisions against media businesses decreased media stock prices. The instrumental variables analysis shows that these appellate court decisions decreased media stock prices relative to non-media stock prices, one and two years after the court decisions. Recent studies indicate that stock prices serve as a proxy for competition and that decreased media competition may correspond to an increase in variety of programming. These findings suggest that when deciding against media businesses, the courts effectively reinforced the purpose of the FCC to serve the public interest by promoting a diversity of viewpoints.

Keywords: Court, Stock, Price, FCC