A seminar by Assistant Professor Peter Cziraki from Texas A&M
Title: Newspaper Closures and Local Investor Information Acquisition
Abstract: There is increasing awareness of how local media affects financial markets, but also of the endogeneity of media coverage. We separate the causal impact of local media on financial markets from selection effects using a new, hand-collected database of newspaper closures. We find that at least 29% of local newspaper closures are driven by distress, and thus, likely endogenous to local economic conditions. Return volatility and idiosyncratic volatility increase after distress-driven newspaper closures, whereas they decrease significantly after closures that are not driven by distress, suggesting the presence of substantial selection effects. The reduction in volatility after non-distress-driven newspaper closures is larger for stocks subject to greater information frictions, lower national media coverage, and for firms located in more remote areas. Overall, our results highlight the importance of separating distress-driven closures of media outlets from those that are less susceptible to endogeneity. When accounting for selection, the estimate of the impact of local newspapers on financial markets increases.
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