Media Coverage and the Cost of Debt

Abstract

This paper investigates the relation between media coverage and offering yield spreads using a comprehensive dataset of 5,338 industrial bonds issued from 1990 to 2011. We find that media coverage is negatively associated with firms’ cost of debt. This association is robust to controlling for standard yield determinants, different model specifications, and endogeneity. We identify 4 economic channels through which media coverage influences the cost of debt: Information asymmetry, governance, liquidity, and default risk. Importantly, media coverage has an independent influence beyond the effects of these economic mechanisms and is not a proxy for other firm attributes.

Who's Greenwashing Via the Media and What are the Consequences? Evidence From China

“…List is a dummy that equals 1 if a firm is on the Best CSR List in a given year and 0 otherwise. In our regressions, we use eight explanatory variables to control for the impacts of firm‐level factors (Du et al ., 2017; Gao et al ., 2020; Ye and Zhang, 2011). Firm size ( Log_Size ) and firm age ( Log_Age ) control for a firm's financing flexibility and information asymmetry.…”

“…To answer this question, several research design challenges need to be resolved. To mitigate the concerns that confounding factors might affect our analysis, guided by Gao et al (2020), for any given year and the same CECE grades, we use a propensity score matching (PSM) approach to identify a de facto counterfactual control group and compare scaled advertising and sales expenses for firms on the list with matched firms not on the Best CSR List. The PSM requires matched firms to have similar fundamental characteristics across eight dimensions: Size, Age, ROA, Lev, SG, AT, Own, and SOE.…”

CEO turnover and audit pricing: the role of media tone

“…By producing and disseminating information to a broad audience, the media play an essential role in reducing information asymmetry among stakeholders (Fang and Peress, 2009). Extant research documents that the media can detect accounting fraud (Joe et al , 2009; Miller, 2006), affect a manager’s capital allocation decision (Liu and McConnell, 2013), increase the probability of forced top-executive turnover (You et al , 2017) and reduce the cost of debt (Gao et al , 2020) and stock price crash risk (An et al , 2020). In addition, media coverage helps in reducing uncertainty, increasing transparency, enhancing credibility and highlighting the feasibility of future projects (Huang et al , 2018).…”

Does credit rating conservatism matter for corporate tax avoidance?

“…Investors in firms included in the Standard & Poor's (S&P) 1500 index are expected to rely less on information released by CRAs as S&P1500 are relatively large firms with high press coverage (Fang and Peress, 2009;Hillert et al, 2014) that plays the information disseminating role (Gao et al, 2020;Sun et al, 2020). Financial analysts are important information providers for investors (Chen and Lin, 2017; and, therefore, the informational utility of credit ratings for firms with higher analyst coverage is expected to be smaller than other firms.…”