The Corporate Governance Role of the Media: Evidence from Russia

Abstract

We study the effect of media coverage on corporate governance by focusing on Russia in the period 1999-2002. This setting offers us three ideal conditions for such a study: plenty of corporate governance violations, no alternative mechanisms to address them, and the presence of an investment fund (the Hermitage) that actively lobbies the international press to shame companies perpetrating those violations. We find that Hermitage's lobbying is effective in increasing the coverage of corporate governance violations in the Anglo-American press. We also find that coverage in the Anglo-American press increases the probability that a corporate governance violation is reversed. This effect is present even when we instrument coverage with an exogenous determinant, i.e. the Hermitage's portfolio composition at the beginning of the period. The Hermitage's strategy seems to work in part by impacting Russian companies' reputation abroad and in part by forcing regulators into action.

Corporate Fraud and Managers’ Behavior: Evidence from the Press

“…Johnson et al (2005) have used newspapers as a data source and fall into this second category by studying the influence of the financial press on stockholder wealth. Media's role as a monitor for accounting fraud has been recently studied (Dyck et al, 2010;Miller, 2006) and has been shown to be important due to the pressure it places on management (Dyck et al, 2008). While we recognize that the media may have incentives to highlight fraudulent behavior to increase circulation, the press still fulfills two key roles.…”

“…While we recognize that the media may have incentives to highlight fraudulent behavior to increase circulation, the press still fulfills two key roles. First, in relaying information from other intermediaries (auditors, analysts, lawsuits), the press attracts the attention of institutions that may take action (e.g., regulatory bodies, consumer groups, investment funds) (Dyck et al, 2008). Second, the press can produce new information through its own investigations and analysis.…”

Word Power: The Impact of Negative Media Coverage on Disciplining Corporate Pollution

“…News media are generally profit driven and they naturally prefer to report news that would attract public attention M. Jia et al (Dyck et al 2008). A negative report exposing a firm engaging in pollution activity is newsworthy because readers are interested in knowing more about an activity that affects their daily lives in very significant ways.…”

“…The news media has an important effect on corporate business practices due to their dominant position as information intermediaries in our society (Bednar 2012;Core et al 2008) for stakeholders, who access information about firms primarily via news media (Bednar et al 2013;Dyck et al 2008;Pollock and Rindova 2003). Previous studies have supported the notion that media reports (e.g., coverage and tenor) influence various aspects of corporate business, including stock performance (Bhattacharya et al 2009), CEO compensation and dismissal (Core et al 2008), corporate acquisitions (Liu and McConnell 2013), financial fraud (Miller 2006), and strategic change (Bednar et al 2013).…”

“…The impact of media coverage on corporate social practices functions through two conduits: on the one hand, the news media is an information broker that disseminates corporate information to a wide public and mitigates the information asymmetry between firms and stakeholders (Bednar 2012;Dyck et al 2008;Dyck and Zingales 2002;Frankel and Li 2004;Miller 2006;Saxton and Anker 2013;Wildman 2008). On the other hand, the media plays a social constructivist role that determines how the public evaluates a focal firm and what it expects in terms of desirable corporate practices.…”