UA study looks at business coverage

Fewer reporters tied to info gap

This is the Sam M. Walton college of Business at the University of Arkansas, Fayettevillle for the new comers guide.  (Arkansas Democrat-Gazette/FILE PHOTO)
This is the Sam M. Walton college of Business at the University of Arkansas, Fayettevillle for the new comers guide. (Arkansas Democrat-Gazette/FILE PHOTO)

FAYETTEVILLE -- Recent research at the University of Arkansas at Fayetteville shows that fewer local reporters covering publicly traded companies resulted in reduced and poor-quality information about those businesses.

In an interview Monday, Caleb Rawson, assistant professor of accounting in the Sam M. Walton College of Business and co-author of the study, said his research showed that employment in newspapers had declined dramatically -- more than 75% since 2000. He said in Northwest Arkansas in 2001, one in every 300 jobs was in the newspaper industry, while 20 years later it declined to one in 1,300 jobs.

"That was just mind-boggling to us," Rawson said.

He noted that while other research has focused on the impact of fewer reporters on local government, the recent study showed the significant impact fewer local reporters had on the availability of reliable information concerning businesses and public companies.

"It's hard to know what is going on with fewer boots on the ground," Rawson said.

The study by the accounting researchers used stock stability and accurate predictions by industry analysts to measure the impact of local media on the companies. It showed that when there was less local newspaper coverage, stocks were more volatile and important details about the company and its value were not as consistently understood, while more local coverage resulted in more stock stability and better understanding of the company overall.

According to the Pew Research Center, newspaper employees made up about 6-in-10 newsroom jobs overall in 2008 --or a little more than 60% -- but by 2020 that had dropped to about 35% or fewer than 4-in-10. The center noted in 2020, a third of large newspapers in the U.S. experienced job reductions. The Los Angles Times said last week that it would cut 74 jobs, or about 10% of its newsroom, as part of a restructuring effort.

The study by Rawson and co-authors Kris Allee, professor of accounting at the University of Arkansas, and Ryan Cating, assistant professor of accounting at the University of Central Arkansas, will be published by Review of Accounting Studies.

The findings also show reduced news coverage and the resulting information vacuum, had greater impact based on how important a company was to the local economy. For these types of companies, less focus from local newspapers meant significantly lower analysts' accuracy and forecasts were fewer and less regular.

The study also found when newspapers reduced coverage, companies issued more forward looking statements and analysts increased their coverage to try to fill the information gap left by fewer journalists. Individual investors also increased their information gathering because less data was available when newspaper coverage declined.

The researchers used U.S. Department of Labor data to compare companies' key financial indicators with the level of news coverage intensity, determined by each area studied, as a percent of local jobs in the newspaper publishing industry.

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