Researchers from the accounting department at the University of Arkansas have conducted a study aimed at understanding the impact of shrinking newsrooms on the financial information of public companies. The study, which is set to be published in the Review of Accounting Studies, revealed that companies that receive local newspaper coverage benefit from increased stock stability and more accurate forecasts by financial analysts. Conversely, the findings show that reduced local news coverage is strongly associated with increased stock volatility, information asymmetry, and illiquidity. The lead author of the study, Caleb Rawson, explained that the problem is caused by an employment decline of more than 75% in newspapers since 2000. The research used data from the Bureau of Labor Statistics, with Rawson and his co-authors measuring the intensity of local news in each metropolitan statistical area (MSA) by the percentage of local jobs in the newspaper publishing industry.
The study found that the impact of reduced news intensity on reduction of quality of information is exacerbated when the affected firm is important to the local economy. For these firms, reduced local newspaper intensity significantly reduced analyst accuracy and produced fewer and more dispersed forecasts. The study states that Rawson and his colleagues also looked into how stakeholders react to the declination in local coverage of firms. The findings indicate that firm managers increased the number of forward-looking financial disclosures, analysts boosted their own coverage, and investors increased their data-gathering activities. Rawson noted that the study provides insights into the methods stakeholders adopt in improving firms’ information environments when local news coverage fades and highlights the important role local newspapers play in the economy.
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Local newspaper coverage improves information about public companies (2023, June 9)
retrieved 10 June 2023
from https://phys.org/news/2023-06-local-newspaper-coverage-companies.html
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