This is the
main discovery made in a paper published in Administrative Science Quarterly byMark R. DesJardine, Wei Shi, and, Xin Cheng. Their starting point is the
remarkable concentration in firm ownership that has happened following the
growth in institutional investments in the form of fund management firms. These
investors want to (in fact, are obliged to) maximize the returns of their
holdings, so they will do whatever it takes to increase the value of the firms
they own.
What does
“whatever it takes” mean? This is where media ownership comes into play. An
interesting feature of owning media firms is that media firms are involved in
news gathering and reporting, which can influence the competitive balance of an
industry. Hurt one firm, and the other gains. Report selectively, and the value
of firms owned by the fund that also owns media outlets will increase. As a
result, media talk is expensive for the competitors of firms that have a media
connection in their ownership.
Such media
effects are a very big deal because they show an illicit use of media ownership
that tilts valuations of firms, and corresponding access to resources and
success in markets, away from the products and services they provide. They can
only happen as a result of unethical actions by media executives and editors.
The
research they present has plenty of evidence. Media coverage turns negative
when a competitor firm has financial links with the media. This effect is
stronger for competitors with more similar product lines, so relevance
increases negativity. The effect is stronger for competitors nearby, so proximity
increases negativity. And, most perniciously, if the media company CEO has
equity-based compensation, so the CEO gets paid more when the media company
value increases, the effect is also stronger. In sum, negative media coverage
is a result of financial links, and it is particularly negative when the
competitive relations between firms are close and when the media company CEO is
for sale.
Should we
worry about this? People arguing that “talk is cheap” would not be too
concerned about these findings. But media coverage has significant consequences
for firms, especially for their access to financial resources, so seeing it can
be tilted so easily means that there is one more area of competition that
requires regulatory attention. We cannot have an economy and society in which
consequential, expensive talk is for sale.
