Is Media Really the Great Information Equalizer? The Effects of WSJ Coverage of Firm Earnings Announcements on Peer Information Asymmetry in Information Transfers

Abstract

Prior research generally finds that the financial media levels the playing field among investors by reducing information acquisition costs for unsophisticated investors. In the setting of information transfers, I demonstrate that when media coverage is likely to reduce the industry information acquisition costs for both sophisticated and unsophisticated investors, their information gap may be widened. Specifically, I find that same-day Wall Street Journal (WSJ) coverage of a focal firm’s earnings announcement (EA) exacerbates information asymmetry of its industry peers around the focal firm’s EA day. However, when the WSJ article is published one day after the EA, there is no change in peer information asymmetry on both the EA day and the day after. Additional analysis shows that the effects of same-day WSJ coverage on peer information asymmetry are stronger when it is more likely to reduce peer investors’ industry information acquisition costs and when inferring the implications of the focal firm EA for the peer entails higher information integration costs. These findings suggest that media coverage may increase information asymmetry among investors despite its importance in information dissemination.