Ownership ties, conflict of interest, and the tone of news

Published in: European Financial Management

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Undoubtedly, the media significantly impacts how readers perceive events and can shape the social, political, and economic landscape. Previous research has shown how the media can influence elections and financial markets, sometimes benefiting certain parties at the expense of others.

The problem arises when the media are in a conflict of interest. For example, studies have demonstrated that newspapers treat past or current advertisers differently and more favorably.

In this paper, we examine a different type of conflict of interest that arises when a listed company owns a newspaper. We investigate whether the tone used by the newspaper when reporting news about the controlling company is different from the tone used for any other firm.

To illustrate this point, we provide an example of how two Italian newspapers reported on Fiat, Italy's main automotive manufacturer, after it announced a dramatic drop in monthly sales and market share that caused a 3% drop in Fiat stock prices. This news was reported differently by two of the main Italian newspapers: La Repubblica ran the headline “Automotive sales drop in Europe. Subsidies ended: in April -7%, Fiat -27%,” whereas La Stampa, a newspaper controlled by Fiat, reported “Fiat’s sales surge in UK and Spain, where the effect of subsidies is still significant” and, then, in the subheading, “With no government subsidy the car market slows down in April by 6.9%, Germany is the worst, dragging along the Fiat Group.”

We demonstrate that this example is not an isolated incident and that newspapers often manipulate the news they report to make information on related parties appear more positive or less negative than it actually is. This is motivated by economic factors, as positive coverage can attract investor and customer attention and result in higher stock market quotes or more sales.

We analyzed approximately 123,000 articles published by the top-five Italian newspapers over a five-year period and found that articles covering firms with a conflict of interest had a significantly lower propensity to use negative and legal tones when reporting information on connected companies.

We also observed some variation in how different newspapers reported on connected firms, which we attribute to a trade-off between the benefits of reporting favorably about a connected firm and the loss of reputational capital.

Given the media's significant role in shaping public perception and investor beliefs, this paper has important policy implications regarding corporate ownership of the media and the disclosure of their conflict of interests. Similarly to what has been mandated for analysts’ reports, newspapers’ articles could be asked to highlight their conflict of interest when reporting on their connected firms.

Published in: European Financial Management

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Authors at the Department of Management

Emanuele Bajo – Full Professor

Academic disciplines: Finance

Teaching areas: Corporate Finance, Risk Management

Research fields:  IPO, Household Finance, and Corporate Risk Management

Professor of Finance at the University of Bologna, Associate Dean at the University of Bologna Business School (BBS), and Honorary Professor at the University of Queensland (Australia). In the past, he has been Adjunct Professor at Johns Hopkins University, San Diego State University, and Boston College. He has published numerous articles in prestigious finance journals (among others, the Journal of Financial Economics and the Journal of Corporate Finance) and he is the Executive Editor of the Journal of Economics and Business.

Marco Bigelli – Full Professor

Academic disciplines: Finance

Teaching areas: Corporate Finance, Corporate Governance

Research fields:  Corporate Governance, Shareholders’ expropriations

Professor of Finance at the University of Bologna and has been Visiting Professor at the Johns Hopkins University, at the Università della Svizzera Italiana, at the Université de Paris XII, and at the University of Strathclyde. Author of two books and numerous papers in international journals, he is also an independent director and President of the Risk Committee in a bank.