The Information Role of the Media in Earnings News

Abstract

I reexamine whether media articles with substantive editorial content inform the market's reaction to firms' earnings news. Using variation in earnings announcement coverage due to restructuring at The Wall Street Journal (WSJ), my analyses suggest that WSJ earnings articles improve price discovery and increase trading volume at S&P 500 earnings announcements. Additionally, textual analysis suggests media articles that differ more from the firm's earnings release increase trading volume, and that the differences speed up (slow down) price discovery when they corroborate (contradict) the tone of the firm's news. Such high difference articles are slightly longer, are more readable and specific, include more references to the industry and economy, repeat less "stale" news published in previous WSJ articles, and quote more investor and expert sources. Overall, my paper contributes to research on the role of the media in earnings news by providing evidence that journalists' editorial content helps investors understand firms' earnings, instead of simply entertaining or increasing awareness.

Keywords: business journalism, media, price discovery, volume, returns, earnings

JEL Classification: M40, M41, G10, G11, G12, G14, G20