Does Communication Between Media Journalists and Firm Executives Improve the Quality of News Reports? An Empirical Study Based on Company Visits
RU Yi, GUO Haojing, XUE Jian
Business School, Renmin University of China; Business School, Beijing Technology and Business University; School of Economics and Management, Tsinghua University
Summary:
Many studies explore the role of media as an information intermediary and corporate monitor in the capital market. However, studies increasingly show that the media's lack of objectivity and independence can undermine their normal functions. In addition, studies mainly focus on the economic consequences and restrictive factors of news reporting and ignore its production process in which journalists write and compile news articles. The prerequisite for high-quality news articles is that journalists should obtain sufficient information from society and then analyze and interpret their findings accurately and promptly. Therefore, the types of information source channels and their effectiveness are worthy of in-depth discussion. Direct communication with firm managers should be one of the most valuable information sources for financial journalists. However, it is not clear whether journalists can improve the quality of their reporting through this activity. On the one hand, journalists may obtain crucial information and publish more accurate news reports with higher information content, which is called the “information discovery hypothesis”. On the other hand, journalists may alter the tone of their news reports to satisfy the needs of firm managers, leading to more optimistic tone and lower information content, which is called the “reporting bias hypothesis”. China's special institutional background provides an ideal setting for our study. The Shenzhen Stock Exchange requires listed companies to increase communication with investors, analysts, media, and other market participants through investor relations activities. Using a sample of journalists from prestigious media outlets who visited listed companies from 2007 to 2019 and implementing a difference-in-differences method, we examine whether direct communication between media journalists and firm managers affects the quality of news reporting. The site visit data are obtained from the Corporate Site Visit Database (CSVD) developed by Datago Technology Limited and the investor relations activity database of the China Stock Market and Accounting Research (CSMAR). Our results show that the tone of visiting media is more optimistic, especially when companies release bad news. In addition, the visiting media only increase the information content of their news reports when companies release good news. There is no significant difference in information content between the visiting and nonvisiting media in the case of bad news. These results indicate that the way media journalists interpret information after communicating with management varies with the nature of the information obtained. Our analyses show that the involvement of analysts, institutional investors, or peer journalists and a richer information environment can effectively restrain the optimism bias of visiting media. Company visits are an important channel through which the media are more likely to establish or maintain business relationships. Our conclusions are still valid after using a treatment effect model to address self-selection bias, in addition to a series of other robustness tests. Our study supplements the relevant literature on the factors reshaping the role of media in society. Studies mostly discuss the factors affecting the quality of media reports from the perspectives of journalists, readers, advertisers, and governments, but few studies explore the process and channels through which media obtain information. Corporate site visits are one of the most important ways to obtain information. However, this process and its economic consequences remain locked in a “black box”. Our study empirically assesses the effectiveness of journalists' communications to obtain information from firm managers. The results show that in terms of the nature of news about site visits, the reactions of visiting journalists after communicating with firm managers are asymmetrical and their optimism bias emerges only when firms release bad news. Our study also enriches the literature on communication between capital market participants and firm managers. Market participants can obtain valuable information from corporate site visits and make better decisions. To the best of our knowledge, few studies illuminate the benefits or costs for visiting journalists. Our results show that when firms release bad news, the quality of visiting journalists' news reporting is impaired. Today, we find that the standards for reporting quality and the responsibilities of journalists during investor relations activities are not clear or specific. The conclusions of our study should attract the attention of regulators and investors.
汝毅, 呙昊婧, 薛健. 媒体记者与公司管理层沟通提高了新闻报道质量吗?——基于公司调研活动的实证研究[J]. 金融研究, 2022, 500(2): 189-206.
RU Yi, GUO Haojing, XUE Jian. Does Communication Between Media Journalists and Firm Executives Improve the Quality of News Reports? An Empirical Study Based on Company Visits. Journal of Financial Research, 2022, 500(2): 189-206.
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