A new academic study makes the case that how the business media reports mergers impacts the stock price of the companies in question, while the ability to predict which journalists will be most accurate can be determined in large part based on their background.
In their white paper, “Rumor Has It: Sensationalism in Financial Media,” Kenneth R. Ahern of the University of Southern California and Denis Sosyura of University of Michigan studies accuracy in the business press in the context of merger rumors. The report noted that while mergers have declined, rumors have increased.
“We challenge the view that the business press is a passive conduit of financial information,” the report said. “Instead, we show that the media’s incentive to attract readers is associated with more speculative reporting.”
Ranking journalists and publications
Using its analytical method, the report rates the accuracy of specific journalists, noting that the most accurate are Dennis K. Berman, Robin Sidel and Nikhil Deogun of the Wall Street Journal followed by Jeffrey McCracken of Bloomberg, having the fourth highest accuracy rate. Berman achieved the most scoops, followed by Andrew Ross Sorkin of the New York Times, whose Dealbook site is known as a hub for mergers and acquisition news.
In terms of business focused publications, Bloomberg was ranked most accurate followed by the Financial Times while the Wall Street Journal and Dow Jones Newswire received the highest percentage of scoops. The report noted that “to win readers’ attention, newspapers have an incentive to publish sensational stories, namely attention-grabbing, speculative news with broad readership appeal.”
The study found that newspaper characteristics were less important for accuracy than the individual journalist and article characteristics.
Accurate rumor reporting pays
The accuracy of rumor articles has a significant impact on stock prices. The study found targets of accurate rumors earn an abnormal return of 6.7% on the rumor date, compared to 3.0% for targets of inaccurate rumors.
In terms of rumors, “newsworthy targets are significantly less likely to come true. This finding suggests that newspapers may be willing to publish rumors that are less accurate if they feature large, well-known firms with broad readership appeal,” the report said.
Characteristics of accurate merger rumors
The study found journalists are typically more accurate if they were older, had an undergraduate degree in journalism, and specialized in the target’s industry. Articles written by reporters that studied journalism in college were significantly more accurate than articles written by journalists who studied other fields, the study noted. Journalists that specialize in the target’s industry are more accurate as are journalists based in New York City, the report concluded.
In terms of the article itself, the study found that “accurate rumor articles are more likely to mention a specific takeover price, to discuss possible bidders, and to indicate that negotiations are in an advanced stage.”
Articles on merger rumors that often turned out to be inaccurate used weak modal words, such as “maybe,” “appears,” and “conceivable,” which indicates that a rumor is less likely to come true, according to the report.
When it comes to scoops, the spring and fall were the best times for journalists. The March-April period produced the most scoops, followed by April-May and September-October, which were tied for second most scoops.