News Coverage: Benefits Of Publicity
University of Texas at Dallas – Naveen Jindal School of Management
December 21, 2015
This paper investigates whether corporate board members with media expertise influence firms’ media coverage and media slant. Firms with a media professional on the board of directors receive more media coverage, and articles written about them include fewer negative words compared with articles on control firms. These findings highlight the importance of the composition of the board of directors as a determinant of information disclosure mechanism.
News Coverage: Benefits Of Publicity – Introduction
News coverage is an important source of information about a firm. Because most outsiders learn about a firm from news articles written about it, firms have incentives to manage how they are covered in the news so that they are presented in the most favorable light possible. This paper presents evidence that the composition of a firm’s board of directors can affect the way the firm is covered in the news. Specifically, we show that a board member with media expertise enhances the firm’s ability to manage how the firm is portrayed in mass media.
We define an individual with past experience in a news organization as an owner, top executive, board member, editor, journalist, and so on as a media professional (MP). We determine a firm’s willingness to actively influence media relations by the existence of such individuals on that firm’s corporate board. We then track the firm’s news coverage and qualitative content of news stories (slant) in a large database of articles from Wall Street Journal, New York Times, and eight major local newspapers that meet our data requirements (Boston Globe, Chicago Sun Times, Denver Post, Pittsburgh Post-Gazette, San Francisco Chronicle, Seattle Post-Intelligencer, St. Louis Post-Dispatch, and Washington Post) between 1996 and 2006. We define a firm’s coverage in a period as the number of times it is mentioned in a news article during the period. We define slant as the percentage of negative minus positive financial words in these firm-specific news stories. Following Loughran and McDonald (2011), Tetlock, Saar-Tsechansky, and Macskassy (2008), and Gurun and Butler (2012), we use textual analysis to identify these negative and positive words.
We show that firms with MPs on their boards experience both greater coverage and more favorable slant. Having an MP increases the number of articles mentioning the firm in a year by 33%, which corresponds to one more article a year for an average firm in the sample. Having an MP decreases the slant in articles mentioning the firm in a year by 21%; however, most of this slant effect is subsumed by timeinvariant unobserved firm characteristics.
We then move on to potential explanations for these results. We investigate three distinct hypotheses. The first hypothesis (media management hypothesis) suggests that MPs are instrumental in creating awareness within a firm of the importance of its media coverage. This could happen if firms hire MPs purposely to become more efficient in dealing with the media, or if MPs create awareness within the firm regarding the importance of media coverage. This hypothesis suggests that appointment of MPs should be correlated with better representation of the firm in the media, in terms of both increased coverage and content of the coverage. In other words, MPs provide expertise that other board members and other media channels do not. Results by and large are consistent with this hypothesis.
The second hypothesis (connections hypothesis) suggests that MPs use their personal connections to influence media coverage and slant in the media outlets they are directly connected with. To investigate the relative importance of these roles (connections vs. expertise), we restrict the sample to those MPs that have direct ties to Wall Street Journal and New York Times to see if MPs affect their firms’ coverage and slant in their connected journal. We find that these media outlets do not seem to have greater coverage or more favorable slant for firms with MPs who have direct ties to these two newspapers.
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