Stop the Presses! Or Wait, We Might Need Them: Firm Responses to Local Newspaper Closures and Layoffs

72 Pages Posted: 10 Jun 2019

See all articles by Min Kim

Min Kim

Arizona State University (ASU) - W.P. Carey School of Business

Derrald Stice

University of Hong Kong - Faculty of Business and Economics - Accounting Area

Han Stice

The Chinese University of Hong Kong

Roger M. White

Arizona State University (ASU) - School of Accountancy

Date Written: May 23, 2019

Abstract

The newspaper industry has struggled in recent decades, as readers and marketing revenue have migrated to digital outlets. Facing these pressures, many US newspapers have downsized or closed completely. We examine changes in firm behavior after they experience a shock to the local newspaper industry. Compared to a sample of matched control firms, we find that following newspaper closures and large industry layoffs, nearby public companies react by (1) increasing voluntary disclosure, consistent with firms responding to an increased demand for their information, and (2) increasing dividend payouts, consistent with firms attempting to alleviate concerns about agency problems exacerbated by the loss of a local watchdog. Cross-sectional analyses confirm that these results are driven by geographically-concentrated firms that rely more heavily on local newspapers to create and disseminate information about them to the public. We match treatment and control firms on both firm and local economic characteristics to mitigate concerns that differences between the two groups are driven by changes between local economies. Finally, we observe no change in either the financial reporting quality or performance of treatment firms, relative to control firms, in the post period, suggesting that the changes we document to payout and disclosure policy are not driven by changes in firm performance or firms’ accounting choices.

Keywords: Newspapers, Local Media, Disclosure, Monitoring, Agency Problems, Dividend Policy

JEL Classification: M41, L82, G35

Suggested Citation

Kim, Min and Stice, Derrald and Stice, Han and White, Roger M., Stop the Presses! Or Wait, We Might Need Them: Firm Responses to Local Newspaper Closures and Layoffs (May 23, 2019). Available at SSRN: https://ssrn.com/abstract=3393199 or http://dx.doi.org/10.2139/ssrn.3393199

Min Kim

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

Derrald Stice

University of Hong Kong - Faculty of Business and Economics - Accounting Area ( email )

Hong Kong, HK
China

Han Stice

The Chinese University of Hong Kong ( email )

Shatin, N.T.
Hong Kong

Roger M. White (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

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