Market Effects of Local Media Employment Reductions on the Idiosyncratic Risk of Nearby Firms; Returns, Valuation, and Debt; and Firm Meet-Beat Behavior and CEO Turnover and Compensation
This research examines the effects of reductions in local and regional media employment on firms’ information environment. A reduction in the number of local media employees available to provide coverage of firms is associated with persistent levels of increased idiosyncratic risk. The source of that firm-level risk appears to be increased estimation risk among investors, rather than decreased awareness about the investment opportunities or real effects on firms’ product market competition. I also demonstrate that overall levels of local media coverage are associated with differences in returns similar to those associated with coverage in national outlets. While a reduction in local media employees does not appear to be associated with increased returns, it is correlated with significant increases in firms’ costs of debt, consistent with lenders recognizing increased information risk. A reduction in local media employment is also associated with evidence consistent with decreased monitoring of firms by the press. Firms headquartered in areas where a reduction in media employment is recorded show increased evidence of earnings management and abnormal discretionary accruals; CEOs are less likely to turnover; and their compensation is higher than for a set of matched control firms. Compensation levels, and specifically changes in profitable exercises of stock and options, are consistent with boards and managers facing less reputational risk for increases in executive compensation.
Jones, Clifford Kyle, "Market Effects of Local Media Employment Reductions on the Idiosyncratic Risk of Nearby Firms; Returns, Valuation, and Debt; and Firm Meet-Beat Behavior and CEO Turnover and Compensation" (2020). ETD Collection for University of Texas, El Paso. AAI27993785.