The (Mis)Allocation of Corporate News

Département d'Economie et Sciences de la Décision

Salle T-014

Abstract :

This paper studies how the distribution of information supply by the news media affects the macroeconomy. We document three connected facts on media's reporting of firm news. First, media coverage is highly concentrated, particularly among the largest firms. Second, firms' equity financing and investment rise after media coverage. Third, these equity and investment responses are largest among small, rarely-covered firms. We then develop a heterogeneous-firm model with a media sector that matches these facts. Asymmetric information between firms and investors leads to financial frictions that constrain firms' financing and investment. Media's role in alleviating information frictions is limited by its focus on large and financially unconstrained firms. Re-allocating news coverage, or allowing firms to buy coverage from outlets in a competitive market, leads to substantial increases in aggregate investment and output. The aggregate effects of media coverage therefore depend crucially on how that coverage is allocated.

Joint work with: Xing Guo and Wenting Song