Does local media affect analyst forecast accuracy: Evidence from local newspaper closure

Analysts collect and analyze both public and private information when making forecasts. Literature has shown that media provides a broad range of firm-, industry-, and market-level information that is consumed by analysts (Kross, Ro, and Schroeder 1990; Drake et al., 2014; Amiram et al. 2016; Twedt 2016; Bradshaw, Wang and Zhou 2019). However, more than one in five papers circulated in the U.S. closed from 2004 to 2018. This research proposal aims to explore the local print newspaper closures as a negative shock to both the local information and monitoring mechanism and examine whether local print media provides additional information and monitoring role that shapes analyst forecast quality. Specifically, we focus on a sample of treatment firms and matched control firms and employ a differences-in-differences (DiD) research design. We test whether and how the analyst forecast accuracy changes after firms experience a nearby local newspaper closure after teasing out the impact of local economic conditions.

Prior studies find that media outlets produce information for both sophisticated and unsophisticated market participants (Bushee et al. 2010). Both anecdotal evidence and literature have shown that local newspapers’ closeness to local information sources such as employees and suppliers has enabled them to produce unique, incremental, and value-relevant information and plays a strong monitoring role on local market participants (Miller, 2006; Bushee 2010; Pew Research Center, 2010; Dyck, Volchkova, and Zingales, 2008; Tetlock et al. 2008; Dyck, Morse, and Zingales, 2010). Although newspapers shrink significantly in recent decades, they still produce 50% to 95% of the original news content, especially on local and regional stories (Erdal 2011; Cage et al. 2017). Local stories generated by local newspapers are often picked up and disseminated broadly by national outlets (Nielsen 2015). Literature has also suggested that online
news outlets and local print newspapers do not fully overlap as they have different economic incentives (Usher 2017). As local newspapers uniquely and incrementally improve firms’ information transparency and provide monitoring of the impartiality and quality of analyst forecasts, we predict that local newspaper closure will adversely affect analyst forecast accuracy. In cross-sectional analyses, we intend to isolate whether the impact of local newspaper closure on analyst forecast accuracy is driven by more localized firms that rely more heavily on local newspapers and whether the impact still holds in states with high internet usage. We will also pay particular attention to addressing the endogeneity concerns.