How Does Analyst Coverage Affect the Quantity, Timing, and Content of Media Coverage?

TL;DR: The authors examined how sell-side analyst coverage influences the quantity, timing, and content of firm-specific media coverage and found that exogenous reductions in analyst coverage decrease the overall quantity of media coverage, while media coverage around earnings announcements actually increases, albeit not enough to offset the decrease in coverage at other times.

Abstract: This paper examines how sell-side analyst coverage influences the quantity, timing, and content of firm-specific media coverage. On the one hand, the loss of analyst information, on which journalists rely, raises the costs of developing a news article. On the other hand, the loss reduces competition and increases investor uncertainty, thus raising the benefits of news articles. Consistent with the added costs outweighing the added benefits, our initial evidence suggests that exogenous reductions in analyst coverage decrease the overall quantity of media coverage. However, media coverage around earnings announcements actually increases, albeit not enough to offset the decrease in coverage at other times. Furthermore, earnings announcement media coverage becomes substantially more informative, as measured by the ability of media sentiment to predict future performance. Overall, our results suggest drops in analyst coverage decrease overall media coverage and shift the media’s information production towards lower cost, more predictable activities.