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Media Coverage and the Cost of Debt

Published online by Cambridge University Press:  08 January 2019

Haoyu Gao ,
Junbo Wang Open the ORCID record for Junbo Wang [Opens in a new window] ,
Yanchu Wang ,
Chunchi Wu  and
Xi Dong
Rights & Permissions [Opens in a new window]

Abstract

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This paper investigates the relation between media coverage and offering yield spreads using a comprehensive dataset of 5,338 industrial bonds issued from 1990 to 2011. We find that media coverage is negatively associated with firms’ cost of debt. This association is robust to controlling for standard yield determinants, different model specifications, and endogeneity. We identify 4 economic channels through which media coverage influences the cost of debt: Information asymmetry, governance, liquidity, and default risk. Importantly, media coverage has an independent influence beyond the effects of these economic mechanisms and is not a proxy for other firm attributes.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 2 , March 2020 , pp. 429 - 471
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019 

Footnotes

1

The authors thank Justin Birru and participants at the 2016 China International Conference in Finance for their helpful comments. We are grateful to Paul Malatesta (the editor) and Ron Masulis (the referee) for their valuable comments and suggestions that have helped improve our paper significantly. We also thank Kee H. Chung, Qianqian Huang, and Jack Jiang for sharing data. Gao acknowledges financial support from the National Science Foundation of China (No. 71702207). J. Wang acknowledges financial support from a City University Strategic Research Grant (Project 7004979 and 7004712) and a research grant from the National Science Foundation of China (No. 71528001 and 71720107002). Y. Wang acknowledges financial support from Innovative Research Team of Shanghai University of Finance and Economics (No. 2014110345).

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