Don't Believe the Hype: Local Media Slant, Local Advertising, and Firm Value




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    • Gurun is with School of Management, University of Texas at Dallas, and Butler is with Jones Graduate School of Management, Rice University. We thank Vikas Agarwal, Anup Agrawal, Utpal Bhattacharya, Geoffrey Booth, Lee Ann Butler, Bill Cready, Hemang Desai, Steve Dimmock, Ted Fee, Ayfer Gurun, Charlie Hadlock, Doug Hanna, Steve Hillegeist, Zoran Ivkovic, Rick Johnston, Jayant Kale, Naveen Khanna, Omesh Kini, Qin Lei, Alina Lerman, Erik Lie, Dong Lou (AFA Discussant), Ram Natarajan, Barb Ostdiek, Joel Peress, Suresh Radhakrishnan, Michael Rebello, Chip Ryan, Andrei Siminov, Nitish Sinha (WFA Discussant), David Solomon, Mark Vargus, Scott Weisbenner, James Weston, seminar participants at University of Texas at Dallas, University of Alabama, Georgia State University, Southern Methodist University, Michigan State University, University of Iowa, Case Western Reserve University, McMaster University, the 2010 AFA meeting, and the 2011 WFA meeting for comments, and Adithya Surampudi and Mustafa Kamasak for their able research assistance. Kerry Hennigan provided excellent editorial assistance. We thank Campbell Harvey, an anonymous associate editor, and an anonymous referee for useful suggestions that helped us improve the paper substantially. Any errors are ours.


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.