Banking on Bias: Media Coverage and Financial Bailouts

Abstract

This paper studies the optimal bailout coverage of a media firm. Driven by the incentive to lower its expected borrowing costs, the media firm's coverage tends to favor the banking sector. However, this pro-bank bias results in the same ex ante expected borrowing cost as truthful coverage. While bias reduces borrowing costs when a bailout provides no public benefit, it also leads to higher borrowing costs when a bailout serves the public interest. Ultimately, pro-bank media bias always harms the taxpayer's expected welfare. Moreover, greater financial fragility in the media sector increases the likelihood of bank failures that taxpayers would ideally seek to prevent.