A Theory of Financial Media
62 Pages Posted: 2 Oct 2019 Last revised: 13 Oct 2020
Date Written: October 02, 2020
We present a model of financial media. In our model, firms strategically use the media to communicate corporate announcements to a group of traders, who do not observe announcements directly, but only through media reports. Journalists strategically select which announcements to report to their readers, and this inadvertently incentivizes firms to bias the underlying announcements. In equilibrium, media coverage is tilted towards (i) positive news and (ii) extreme news. The presence of financial journalists renders stock prices inflated but more informative, on average. We provide additional predictions regarding the media's impact on the quality of firm announcements and stock prices.
Keywords: financial journalism, disclosure, bias, price quality
JEL Classification: D82, G14, M40
Suggested Citation: Suggested Citation