News Bias in Financial Journalists’ Social Networks

• Published date: 01 September 2024
• Author: GUOSONG XU
• Date: 01 September 2024
• DOI: http://doi.org/10.1111/1475-679X.12560

DOI: 10.1111/1475-679X.12560

Journal of Accounting Research

Vol. 62 No. 4 September 2024

Printed in U.S.A.

News Bias in Financial Journalists’

Social Networks

GUOSONG XU∗

Received 1 August 2022; accepted 17 May 2024

ABSTRACT

Connected financial journalists—those with working relationships, com-

mon school ties, or social media connections to company management—

introduce a marked media slant into their news coverage. Using a compre-

hensive set of newspaper articles covering mergers and acquisition (M&A)

transactions from 1997 to 2016, I find that connected journalists use signifi-

cantly fewer negative words in their coverage of connected acquirers. These

∗Erasmus University Rotterdam

Accepted by Luzi Hail. I thank the associate editor and an anonymous reviewer for helpful

comments. For feedback, I thank Nihat Aktas, Yakov Amihud, Bernard Black, Audra Boone,

Eric de Bodt, Travers Barclay Child, Lauren Cohen, Lin Willian Cong, Stefano DellaVigna,

Olivier Dessaint, Daniel Dorn, Daniel Ferreira, Eliezer Fich, Diego Garcia (discussant), Andrey

Golubov, Nandini Gupta, Umit Gurun (discussant), Xing Huang, O˘

guzhan Karaka¸s, Markku

Kaustia, Matti Keloharju, Yijun Li, Erik Loualiche (discussant), Tim Loughran (discussant),

Song Ma, Ron Masulis, Mario Schabus (discussant), Antoinette Schoar, Frederik Schlinge-

mann, Ishita Sen (discussant), Paul Smeets, Noah Stoffman, Laurence van Lent, Vladimir

Vladimirov, Michael Weber, Burcin Yurtoglu, Dexin Zhou (discussant), and participants at

the 2020 European Finance Association Meetings, 2018 European Finance Association Doc-

toral Tutorial, CEIBS Finance and Accounting Symposium, European Economic Association

Meetings, Helsinki Finance Summit, Indian School of Business Summer Research Conference,

Paris December Finance Meeting, SFS Cavalcade North America, Aalto University, Cambridge

Judge Business School, Drexel University, Erasmus University Rotterdam School of Man-

agement, ESCP–Europe, Fudan University School of Management, Humboldt University in

Berlin, Paris–Dauphine University, University of Padova, University of Strathclyde, and WHU–

Otto Beisheim School of Management. A previous version of this paper was titled “Friends in

Media.” The author has no conflict of interest to declare. An online appendix to this paper

can be downloaded at https://www.chicagobooth.edu/jar-online-supplements.

Correspondence: Guosong Xu, Erasmus University Rotterdam. Email: xu@rsm.nl

1145

© 2024 The Author(s). Journal of Accounting Research published by Wiley Periodicals LLC on behalf of The

Chookaszian Accounting Research Center at the University of Chicago Booth School of Business.

This is an open access article under the terms of the Creative Commons

Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium,

provided the original work is properly cited, the use is non-commercial and no modifications or

adaptations are made.

1146 g. xu

journalists are also more likely to quote connected executives and include less

accurate language in their reporting. Moreover, they tend to portray other

firms in the same network in a less negative light. Journalists’ favoritism bias

has implications for both capital market outcomes and their careers. I find

that acquirers whose M&As are covered by connected journalists receive sig-

nificantly higher stock returns on the news article publication date. However,

these acquirers’ stock prices reverse in the long term, suggesting market over-

reaction to news covered by connected journalists. Around M&A transactions,

connected articles are correlated with increased bid competition and deal

premiums. In terms of future career development, connected journalists are

more likely to leave journalism and join their associated industries in the long

run. Taken together, the evidence suggests that financial journalists’ personal

networks promote news bias that potentially hinders the efficient dissemina-

tion of information.

JEL codes: G14, G34, G40, M41

Keywords: news bias; social networks; financial journalism; M&As; account-

ing fraud

What the blurbs did not mention was that each man was praising the work of a

sometime boss. […] [The journalists] have since written positively about Lord Black

in their columns, though without mentioning their business dealings.

Jacques Steinberg and Geraldine Fabrikant New York Times, December 22,

2003

1. Introduction

The central role of media in the economy has spurred extensive research

into the influence of business press on information dissemination (Bushee

et al. [2010], Drake, Guest, and Twedt [2014]). However, relatively little re-

search has contextualized journalists’ news stories and studied the sources

of potential bias, that is, how and why financial journalists make their edi-

torial decisions. Echoing this view, Call et al. [2022, p. 3] underscore the

importance of understanding the “incentives that motivate financial jour-

nalists,” as this helps “provide a more complete picture of the environment

from which articles in the financial press emerge.”

I make progress on this front by studying (1) how financial journalists’

social networks influence their stories and (2) the consequences of these

networks for both financial market outcomes and journalists’ careers. Jour-

nalists’ social networks with companies provide reporters with better access

to the corporate management. If the financial media compete via accuracy

for the attention of rational investors seeking reliable information, a well-

connected journalist could advance by providing more credible reporting.

However, as Dyck and Zingales [2003] argue, social networks also create an

implicit incentive for journalists to inject biases into stories about a firm.

news bias in financial journalists’ social networks 1147

Such biases arise because financial journalists may feel obligated to provide

positive coverage in exchange for access.1

I assess these predictions by assembling a comprehensive set of finan-

cial articles published in The Wall Street Journal and the Financial Times from

1997 to 2016.2I focus on one type of business news: mergers and acquisi-

tions (M&As). M&A news provides a good testing ground for slant in the

business media for three reasons. First, the assessment of synergies in M&As

is subject to individual perspectives. Gentzkow and Shapiro [2006] predict

more media bias in events in which outcomes (e.g., M&A synergies) are dif-

ficult to verify. Second, bidding in M&As comprises a series of observable

stages. The granularity of the data enables me to examine both short-term

effects of bias, such as stock market reactions, and the bidding process, such

as bid prices and deal consummation. Finally, acquisitions are an important

corporate governance mechanism. Thus, any effects due to distortions in

media stories are of first-order importance for shareholders.

My first set of analyses focuses on media slant in M&A articles written

by connected journalists. I examine three types of social ties: educational

ties, work relationships, and social media links. Using data obtained from

professional network Web sites, I identify the colleges attended by the ac-

quirers’ CEOs and the authors of news articles. This enables me to observe

whether, for instance, John Riccitiello, CEO of Electronic Arts, attended

the same college as Nick Wingfield, a reporter for the Wall Street Journal,

who wrote about Electronic Arts’s acquisition of Take–Two in 2008. To cap-

ture potential working relationships between a firm and a journalist, I ex-

amine whether a particular reporter has written multiple exclusive stories

about that firm within the 12 past months. This approach follows Solomon

[2012] and is based on the idea that journalists who frequently cover a firm

are more likely to develop personal ties with its management. Furthermore,

I examine social media interactions between journalists and CEOs by check-

ing whether they follow each other on Twitter (Barnidge et al. [2020]).

I find a negative correlation between a journalist’s social ties and their use

of negative words, as defined by Loughran and McDonald [2011]. Specifi-

cally, articles written by journalists whohave working relationships or school

ties with the companies they cover contain approximately 37% (20%) fewer

negative words. Similarly, social media affiliations are associated with 59%

less negative slant. These results are obtained in panel regressions in which

1Consistent with this view, The New York Times’s newsroom policy cautions that “staff mem-

bers … must be sensitive that personal relationships with news sources can erode into fa-

voritism.” See also the New York Times’s“Friendship and Business Blur in the World of a Media

Baron,” as presented in the opening quote.

2The Wall Street Journal and the Financial Times are the two largest financial newspapers

in the world. Their average weekday circulations were around 2 million and 1 million, re-

spectively, in 2014 (according to the Alliance for Audited Media and FT internal figures).

The Journal is well established among investment professionals. Studies (e.g., Tetlock [2007],

Kothari, Li, and Short [2009], Dougal et al. [2012], Guest [2021]) reveal that its coverage can

significantly impact the stock market.