A Theory of Financial Media

62 Pages Posted: 2 Oct 2019 Last revised: 13 Oct 2020

See all articles by Eitan Goldman

Eitan Goldman

Indiana University - Kelley School of Business - Department of Finance; European Corporate Governance Institute (ECGI)

Jordan Martel

Indiana University Bloomington, Kelley School of Business

Jan Schneemeier

Indiana University - Kelley School of Business - Department of Finance

Date Written: October 02, 2020

Abstract

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

Goldman, Eitan and Martel, Jordan and Schneemeier, Jan, A Theory of Financial Media (October 02, 2020). European Corporate Governance Institute – Finance Working Paper No. 657/2020, Available at SSRN: https://ssrn.com/abstract=3457591 or http://dx.doi.org/10.2139/ssrn.3457591

Eitan Goldman

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-856-0749 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
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Belgium

Jordan Martel

Indiana University Bloomington, Kelley School of Business ( email )

1275 E 10th St
Hodge Hall
Bloomington, IN 47405
United States

HOME PAGE: http://www.jordanmartel.com

Jan Schneemeier (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1275 E 10th St
Bloomington, IN 47405
United States

HOME PAGE: http://www.jan-schneemeier.com

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