The Role of the Business Press as an Information Intermediary



This paper investigates whether the business press serves as an information intermediary in the capital markets. The press plays multiple roles including broadly disseminating information, packaging information from multiple sources, and creating new information through journalism practices. Through these services, the press has the potential to shape a firm's information environment by increasing the amount of information flow in the market, by alerting a broader set of investors to news at the firm, and by reducing the level of information asymmetry across investors. We examine the impact of the press on firms' information environments during earnings announcements. In order to focus on firms with likely information problems and capital needs, we examine a sample of 1,246 medium-sized NASDAQ growth firms from 1993 to 2004. We collect 672,052 articles for these firms, which we classify as firm-initiated or press-initiated coverage. Consistent with our hypotheses and theoretical predictions, we find that greater press coverage increases public information about firms (measured by greater absolute returns and trading volume at the time of an earnings announcement), reduces the degree of information asymmetry (measured by lower spreads and greater depth), and facilitates more of both small and large trades. These results are robust to controlling for a variety of firm characteristics such as size, the presence of other information intermediaries, such as analysts and institutional holdings, and the level of firm-initiated disclosures. Our findings suggest that the press is an independent information intermediary and an important factor in reducing information problems related to earnings announcements.
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Ingolf Dittmann