No news is bad news: local news intensity and firms’ information environments

We examine the effects of local newspapers on firms’ information environments. With newspaper employment dropping precipitously in the last few decades, we posit that these changes will harm local firms’ information environments. Consistent with local news improving information environments, we find that volatility, spreads, and illiquidity increase as local newspaper intensity declines and that this is associated with firms’ importance in their local economy. We further find that for firms that are more important in their community, or have busy analysts, less local newspaper intensity is associated with significantly lower analyst accuracy and higher forecast dispersion. This is consistent with local newspapers improving information environments, even for sophisticated and likely remote information intermediaries. We also investigate how stakeholders respond to declines in local news and find that managers increase the amount of forward-looking disclosures while analysts increase coverage. These results provide insights into the methods by which stakeholders attempt to improve firms’ information environments when local news coverage fades.