Wenting Song, Bank of Canada

The Allocation of Corporate News

With Xing Guo & Alistair Macaulay

We study how media’s reporting of corporate news affects firm life cycles in the United States. We document that corporate news reporting is highly concentrated among larger firms, and that this concentration is procyclical. Media coverage is associated with a greater probability of issuing equity, a higher rate of investment, and greater profitability over subsequent periods. In a quantitative model with a media sector that matches these facts, media reporting alleviates asymmetric information in financial markets for reported firms. However, media coverage concentrates on large firms who are financially unconstrained. Therefore, reallocating media coverage would promote firm growth, since small and young firms who benefit the most from media’s information revelation are currently under-reported.