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Don't Believe the Hype: Local Media Slant, Local Advertising, and Firm Value
Author(s) -
GURUN UMIT G.,
BUTLER ALEXANDER W.
Publication year - 2012
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2012.01725.x
Subject(s) - business , advertising , stock (firearms) , value (mathematics) , equity (law) , enterprise value , dispersion (optics) , accounting , political science , geography , mathematics , statistics , physics , archaeology , optics , law
When local media report news about local companies, they use fewer negative words compared to the same media reporting about nonlocal companies. We document that one reason for this positive slant is the firms' local media advertising expenditures. Abnormal positive local media slant strongly relates to firm equity values. The effect is stronger for small firms; firms held predominantly by individual investors; and firms with illiquid or highly volatile stock, low analyst following, or high dispersion of analyst forecasts. These findings show that news content varies systematically with the characteristics and conflicts of interest of the source.