The Corporate Governance Role of the Media: Evidence from Russia

Abstract

We study the effect of media coverage on corporate governance outcomes by focusing on Russia in the period 1999-2002. Russia provides a setting with multiple examples of corporate governance abuses, where traditional corporate governance mechanisms are ineffective, and where we can identify an exogenous source of news coverage arising from the presence of an investment fund, the Hermitage fund, that tried to shame companies by exposing their abuses in the international media. We find that the probability that a corporate governance abuse is reversed is affected by the coverage of the news in the Anglo-American press. The result is not due to the endogeneity of news reporting since this result holds even when we instrument media coverage with the presence of the Hermitage fund among its shareholders and the “natural” newsworthiness of the company involved. We confirm this evidence with a case study.