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Management Accounting
Dr. Ashish Verma
Team
Abhijit Jha (01)
Abhinanda Das (02)
Ajay Sharma (09)
Gaurav Eshpuniyani (33)
Kapil Singh (43)
The Role of the Business Press as an InformationThe Role of the Business Press as an Information
IntermediaryIntermediary
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Content
Introduction & Background
Whatis Information Intermediary
Types ofInformation Intermediary
Business Press as Information Intermediary
Conclusion
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Introduction
We woulddiscuss how business press acts as anWe woulddiscuss how business press acts as an
agentthatprovides informationthatis new andagentthatprovides informationthatis new and
usefulto other interested parties, either because itusefulto other interested parties, either because it
has notpreviously beenpublicly releasedor becausehas notpreviously beenpublicly releasedor because
ithas notbeen widelyithas notbeen widely circulatedcirculated
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Role ofBusiness Press Key Studies
Notjust a repeater ofinformation, but rather creates
originalinformation
Press acts as a Watchdogfor Account Fraud
Corporations cannot undermine Press and mustmaintaingood relations with Press
When we look atthe press as a whole, because there
are so many reporters and so many outlets, itdoes
not appear that advertising money biases coverage
Source: Press as AccountingWatchdog by Gregory S. Miller, HBS Professor with expertise in Financial
Communication
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Role ofBusiness Press key studies
the broadest and most widely disseminatedofall
potentialinformationintermediaries,
reachingboth sophisticated and unsophisticated
investo
rs, as well as managers, regulato
rs, ando
thermarketparticipants
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Types ofInformation Intermediary
FinancialAnalysts
Institutional Investors
Media
Business Press Firm Initiated Press Release
JournalArticles
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Information Events
Earnings Disclosures (Quarterly and Yearly Results)
Major Government Events Financial Budgets,
Election, New Govt, others
Industry EnvironmentChanges Mergers & Acquisitions
Company Events ManagementChange, IPOs
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Prior Literature and Empirical Predictions
Business press plays informational role aroundfirms earningsannouncementin multiple ways.
Facilitates disseminationofthe firms earning release and alsoinformation regarding scheduledfirm disclosure .
Press gathers info
rmationfo
rm multiple so
urces and updates repo
rtsofanalystforecast ,price ,managementforecast and Hot stocks.
Press solicits quotes from management and analysts ofthe Earningrelease andinterpretthe informationinthe contextofinformationIndustry
Allthe abo
ve points discussed suggestthe presss p
otentialt
oincrease informationflow and reduce asymmetry across
investors
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Prior Literature and conclusions
Thisjournal also referredtoprevious researchers regarding
role ofthe press inprovidinginformationtofirms investors ,
creditors .
Observed abnormal returns and volume around earnings
announcements are greater whenfirms provide more wordsintheir earnings press release.
Further, observed that a greater number ofwords inthe
press release is associated with lower bid-ask spreads and
greater marketdepth.
Accuracy ofanalysts forecasts is greater for firms withhigher
levels ofcoverage inthe Wall Street Journal.
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The Prediction
Maintests focus onthe influence ofthe press oninformation asymmetryamonginvestors. press coverage disseminates informationto a broadgroupoftraders who wouldnototherwise have the information, it willreduce the information advantage ofthe informedtraders, therebyloweringinformation asymmetry. Press willhave a bigger impactoninformation asymmetry thanthe provisionofnew reporter-generated
information.
We use bid-ask spreads anddepth to capture the price and quantitydimensions ofinformation asymmetry. We predictthat greater presscoverage ofthe earnings announcement, especially through broaderdissemination and more packagingofinformation, lowers bid-ask spreadsandincreases marketdepths duringthe earnings announcementperiod.
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Sample Selection and Variable Measurement
Obtaindata onpress articles between 1993 and 2004 from the Factivadatabase.
First, we restrictour sample to NASDAQfirms, which are generallysmaller andless followedby analysts than NYSE firms.
Second, we require thatfirms be publicly tradedduring 1998. We selectthis date because intensive Factiva coverage begins around 1993,providing us with six years ofpotential coverage before and after 1998.
Selected 50% ofthe sample withthe highest market-to-book assetsratios.
Finally, we merge the Factiva data withthe CRSP, Compustat, and TAQ
data.
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Sample Selection and Variable Measurement
We matchthe articles publicationdates withtrading
dates, either inthe firms earnings announcement
windows or inpre-earnings announcement windows.
When an article occurs on a nontradingday
(Saturday, Sunday, or holiday), we assignittothe
nexttradingday. Our final sample consists of
600,478 press articles for 27,987 firm-quarter
observations, representing 1,182 firms.
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Exceptions
Other than some caveats like sample ofmid-sized NASDAQfirms that are more likely tohave weak public informationenvironments. results may notbe generalizable to samples oflarge firms with a richinformation environmentor small,neglectedfirms.
Focus ofour study around earnings announcementperiods,which contain a predictable news release and cover a short-window. Itis possible thatthe effectofthe press couldbedifferentinless predictable contexts, such as a mergerannouncementor a change in management
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Conclusion
We find strong and consistent evidence thatthe press is an
independentinformationintermediary and animportant
factor in reducinginformationproblems relatedto earnings
announcements.
Finally, the factthatthe press has the potentialtoprovide such
as beneficial role in shapingfirms information environments
motivates future work examininghow corporate managers
can actto improve the timeliness andbreadthof
disseminationoftheir disclosures by the press.
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Thank You!