"The Role of Financial Media in Corporate Financing"


Weihua Huang
Weihua Huang
  • Speaker
School of Business and Economics, Maastricht University

Event Information

Type
Research Seminar
Programme
Finance
Date
Wed. 11 Nov. 2009
Contact
Time
12:00-13:15 hours
E-mail
Location
G2-35
Number


Abstract

Financial media are the most common information sources for retail investors. This paper investigates the reputation effect of financial journalists on capital markets. In the model, an issuing firm may bribe a journalist in exchange for favorable commentaries. Investors price the new shares based on their belief on a journalist's honesty. The results show that the higher the journalist's reputation, the higher will be the issuing price. There is also an positive relation between a journalist's reputation and the amount of the bribe. Competition in the media market can improve the investment efficiency only if an honest journalist exists. If investors have doubt on the integrity of the journalist, publishing favorable reports damages his reputation even if the reports are accurate. To retain his credibility in the long run, an opportunistic journalist does not mimic the honest type, but rather randomizes his strategies between colluding and writing excessively critical articles. The results have implications for the regulation of financial media.
 
The Brown Bag Seminars are sponsored by ERIM.
 
Contact information:
Sebastian Gryglewicz
Email