Media coverage and the cost of equity capital around the world

Abstract

Using a sample of 38 countries, our study is the first to show on a global scale that the relation between media coverage and implied cost of equity capital (ICOC) is negative and both statistically and economically significant. On average, a one-unit increase in media coverage (approximately two news articles) leads to a 0.38% decrease in ICOC. This effect hinges on the degree of press freedom in the reporting country and the credibility of specific media outlets. The effect is more pronounced in countries with less developed capital markets but greater US media penetration. Furthermore, firms with higher information asymmetry or weaker corporate governance experience a stronger impact of media coverage on ICOC. Positive news coverage encourages firms to invest more and use less debt, while negative news coverage has opposite influences. Finally, the release of media news is associated with reduced option-implied volatility.