Media Co-Coverage and Overreaction in Cross-Industry Information Transfers

This study examines whether media co-coverage – a phenomenon where multiple firms are simultaneously mentioned in the same news article as contextual information – induces excessive inter-industry information transfers between two firms due to the increased saliency of their relationship. Using firms from different product market industries that are co-covered in the same Wall Street Journal article, we find that, after co-coverage, the stock price of a co-covered focal firm reacts positively to the earnings surprise of another early-announcing co-covered peer, followed by a reversal on the focal firm’s subsequent earnings announcement day, while there is no reaction to the peer’s earnings news in the pre-co-coverage period. Further analysis suggests that the transfer and the reversal are stronger when the co-coverage information is more salient to investors, and are concentrated among firms with more active retail trading. These findings suggest that co-coverage in financial media, through the saliency effect, can lead to inefficient cross-industry information transfers.