Don’t Believe the (Local) Hype

Butler’s research shows positive local media slant toward local businesses and its outcomes

According to research by Jones Graduate School of Business Professor of Finance Alex Butler and Umit Gurun of the University of Texas at Dallas, when local news media report about hometown companies, they use fewer negative words compared to the same media reporting about nonlocal companies. Although this positive slant may be an innocuous case of local media catering to demand from local readership for good news, the evidence suggests a different explanation.

Companies’ advertising expenditures in local media outlets are closely related to the positive local media bias, or hype, about them. This conflict of interest can be strong enough to turn media watchdogs into cheerleaders, which can in turn affect firm values, particularly those of smaller firms.

The researchers find that national news has no such bias and can be a much more reliable source for those interested in the valuation of a business.

Want to learn more? Watch the new video about the research, visit Butler’s site about the paper and access the full paper, published in the Journal of Finance, here.