Friends in Media: the Implications of Media Connections on Firm's Information Environment
Presentation
Overview
Overview
Description
This study investigates the effect of the corporate executive directors’ social ties
with media on the firm’s information environment. We propose two competing hypotheses on the
impact of the media connections: information efficiency hypothesis and manipulation hypothesis.
Consistent with the manipulation hypothesis, our results suggest that company insiders use the
media connections to lower information environment, as measured using the analyst forecast
accuracy. We find that the effect of media connections is stronger in the presence of more
independent boards and in post-SOX period. The results suggest that the firms with greater media
connections are more likely to use the connections to manipulate information environment in lieu
of earnings management. Furthermore, we determine that firms with larger media connections are
more likely to obfuscate annual reports. We demonstrate that the probability of litigation is higher
for firms with larger media connections, which is also consistent with the manipulation hypothesis.
The path analysis results suggest there is both direct path of media connections on information
environment as well as indirect path through the news coverage. Further investigation reveals that
the firms with larger media connections are more (less) likely to receive positive (negative) news
coverage. The results are economically significant and continue to hold even after addressing the
endogeneity concerns.
