Researchers at the University of Arkansas are expanding their knowledge regarding the impact of shrinking newsrooms on the financial information of public companies.
A forthcoming study in Review of Accounting Studies reveals that local newspaper coverage has a significant influence on general information about public companies. This is evident through reduced stock volatility and more accurate forecasts from financial analysts. Conversely, a decline in local newspaper coverage leads to increased stock volatility, information asymmetry, and illiquidity.
Caleb Rawson, an assistant professor of accounting in the Sam M. Walton College of Business, highlights the alarming statistic of newspaper employment declining by over 75% since 2000. The negative consequences of this trend have been previously demonstrated in relation to local government transparency and accountability. Rawson and his team now find that similar repercussions affect businesses and public companies. The decrease in local newsroom employment negatively impacts the information environment surrounding local firms.
To investigate this further, the researchers utilized data from the Bureau of Labor Statistics to measure the level of local news intensity in different cities or metropolitan statistical areas (MSAs) based on the percentage of local jobs in the newspaper publishing industry. They then compared this data with key indicators of firms’ financial information.
The study reveals that the adverse effects of reduced news intensity are heightened when a particular firm is more significant to the local economy. In such cases, diminished local newspaper coverage results in significantly lower analyst accuracy and fewer or more scattered forecasts.
Additionally, the researchers examined how stakeholders respond to declines in local news coverage of firms. Firm managers increased the number of forward-looking financial disclosures, analysts expanded their own coverage, and investors engaged in more data-gathering activities.
These findings shed light on the strategies employed by stakeholders to enhance firms’ information environments in the absence of robust local news coverage. They emphasize the crucial role that local newspapers play in the economy.
Kris Allee, a professor of accounting at the University of Arkansas and Doyle Z. Williams Chair of the Department of Accounting at the Walton College, co-authored the study alongside Rawson and Ryan Cating, an assistant professor of accounting at the University of Central Arkansas and a U of A doctoral alumnus in accounting.
