Pre-announcement Information Availability: The Effect of Media Coverage on Investors’ Responses to Earnings-related Information
Abstract
This dissertation consists of two essays on the effect of the media coverage on investors’ responses to earnings-related information. In the first essay, “The Effect of Media Coverage on Earnings Expectations”, I examine whether media coverage has a direct effect on the information content of earnings and an indirect effect through changes in analyst forecast activity. Using a broad range of news events prior to earnings announcements, I find that pre-announcement media coverage improves analysts’ anticipation of future earnings and stimulates their forecasting activity prior to earnings announcements. Moreover, after controlling for analyst forecast activity, I find that media coverage helps investors anticipate earnings information and preempts new information in earnings announcements. The path analysis and cross-sectional analysis further suggest that increased analyst forecast activities serve as a mechanism through which pre-announcement media coverage preempts the information content of earnings announcements. Overall, my findings highlight the important role of the media as an information intermediary in increasing the flow of financial information to capital markets prior to earnings announcements. In the second essay, “The Role of the Media in the Pricing of Industry-wide Earnings Information”, I examine whether and how media coverage affects investors’ responses to industry-wide earnings information. While prior research on the role of media as an information intermediary focuses on the price discovery of financial information at the firm-level, I address the question of whether media coverage facilitates intra-industry information transfers and improves investors’ timely responses to earning-related information at the industry-level. By analyzing a broad range of business news coverage during a fiscal year, I find that media coverage mitigates the delayed pricing of industry-wide earnings information. Cross-sectional analyses suggest the effect is concentrated either where industry-level news coverage is higher or intraindustry information transfer is easier. Additionally, industry-level news coverage increases stock price synchronicity, consistent with my argument that media coverage increases the amount of industry-wide information in prices. Overall, my findings highlight the important role that media coverage plays as an information intermediary at the industry-level: it efficiently extracts and disseminates common industry news and acts as a conduit for intra-industry information transfers.
Subject
media coverageearnings announcement
information diffusion
intra-industry information transfers
Citation
Xu, Nina (2019). Pre-announcement Information Availability: The Effect of Media Coverage on Investors’ Responses to Earnings-related Information. Doctoral dissertation, Texas A&M University. Available electronically from https : / /hdl .handle .net /1969 .1 /186403.