The Effect of Media-Linked Directors on Financing and External Governance

Abstract

Firms sharing a board member with a media company receive more news coverage.
This in turn affects those firms’ financing choices: they issue more bonds, rely less on
bank loans, and have lower blockholder ownership. These findings are consistent with
media coverage acting as an external governance mechanism that substitutes for the
monitoring by banks and equity blockholders. The effect of media-linked directors on
financing is evident in cross-section and time-series change analyses and in two different
instrumental variable analyses, suggesting a causal relationship.

Keywords: Media-linked directors, media coverage, financing choices

JEL Classification: G34, G32