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A theory of financial media

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  • Goldman, Eitan
  • Martel, Jordan
  • Schneemeier, Jan

Abstract

We present a model of media coverage of corporate announcements. Firms strategically use the media to communicate corporate announcements to a group of traders who observe announcements not directly but through media reports. Journalists strategically select which announcements to report to readers. Media coverage inadvertently incentivizes firms to manipulate the underlying announcements. In equilibrium, media coverage is tilted towards less manipulated negative news. The presence of financial journalists leads to more manipulation but makes stock prices more informative on average. We provide additional predictions regarding the media’s impact on the quality of firm announcements and stock prices.

Suggested Citation

  • Goldman, Eitan & Martel, Jordan & Schneemeier, Jan, 2022. "A theory of financial media," Journal of Financial Economics, Elsevier, vol. 145(1), pages 239-258.
    • Handle: RePEc:eee:jfinec:v:145:y:2022:i:1:p:239-258
    DOI: 10.1016/j.jfineco.2021.06.038
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    2. Martineau, Charles & Mondria, Jordi, 2022. "News Selection and Asset Pricing Implications," SocArXiv ame2f, Center for Open Science.

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    More about this item

    Keywords

    Financial journalism; Disclosure; Manipulation; Price quality;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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