Research articles for the 2020-01-20

Background Noise? TV Advertising Affects Real Time Investor Behavior
Liaukonyte, Jura,Zaldokas, Alminas
Using minute-by-minute data, we study the real-time effects of TV advertising on retail investor search for financial information and their subsequent trading activity. Our identification strategy exploits the fact that viewers in different U.S. time zones are exposed to the same national advertising at different times, allowing us to control for contemporaneous confounding events. We find that an average ad leads to a 3% increase in SEC EDGAR queries within 15 minutes of the ad’s airing. The ad-induced queries on the advertiser increase trading volume and contribute to a temporary rise in the stock price.

How News and Its Context Drive Risk and Returns around the World
Calomiris, Charles W.,Mamaysky, Harry
We develop a classification methodology for the context and content of news articles to predict risk and return in stock markets in 51 developed and emerging economies. A parsimonious summary of news, including topic-specific sentiment, frequency, and unusualness (entropy) of word flow, predicts future country-level returns, volatilities, and drawdowns. Economic and statistical significance are high and larger for year-ahead than monthly predictions. The effect of news measures on market outcomes differs by country type and over time. News stories about emerging markets contain more incremental information. Out-of-sample testing confirms the economic value of our approach for forecasting country-level market outcomes.

Media Partisanship and Fundamental Corporate Decisions
Knill, April M.,Liu, Baixiao,McConnell, John J.
Using the introduction of Fox News as a natural experiment, we investigate whether partisanship in television coverage influences corporate decisions. We find that, during the George W. Bush presidency, firms led by Republican-leaning managers headquartered in regions into which Fox was introduced shift upward their total investment expenditures, investment expenditures devoted to R&D, and leverage. Our findings imply that in making fundamental corporate decisions, Republican-leaning managers are swayed by the Republican slant of Fox that presents an optimistic macroeconomic outlook. The results highlight the importance of heterogeneity in media slant in understanding the role of the media in corporate decision-making.

Of Poetry and Ethics
Chen, Donghua,Li, Oliver Zhen,Yeung, Bernard Yin,Yu, Junli
Ethics is an important determinant of good governance. However, ethical value is hard to observe, and selecting employees and officials based on ethics can be a challenging task. Ancient Chinese philosophy suggests that poems reflect their authors’ “inner purpose.” During the Tang, one of the most prosperous dynasties in China, the government had a practice of selecting government officials based on the artistic quality of their poems. We thus hypothesize a positive association between the quality of poetry and its author’s ethics. Using historical archival records of civil service officials’ ethics and the artistic quality of their poems during China’s Tang Dynasty, we find a positive association between poetry and ethics and thus preliminary circumstantial evidence that ethical people can be a basis for good organizations.

Political Connections, Media Coverage, and Corporate Violations
Jiang, Zhiqian,Liu, Baixiao,Liu, Jinsong,Ying, Qianwei
We investigate how political connections of public firms in China influence the media coverage of corporate violations. We find that corporate violations committed by politically-connected firms receive less negative media coverage than violations committed by non-politically-connected firms. The effect is more pronounced for firms receiving more attention from the market-oriented media. We employ the scandal involving the largest Chinese market-oriented business newspaper as an exogenous shock to establish a causal link. We further find that less negative media coverage of corporate violations is associated with longer duration of the violation being investigated and being enforced. We interpret our findings to suggest that corporate political connections suppress negative media coverage of corporate misconduct, and the suppression serves as a channel through which firms keep receiving benefits from their political ties.

Pope Breaking News: Does Candidates' Visibility On TV Affect Their Vote Share?
Caprini, Giulia
This paper exploits a natural experiment to identify the causal effect of candidates' TV visibility in campaign on vote shares. Before the 2013 Italian general election, Pope Benedict XVI suddenly resigned, and politics TV coverage sharply dropped. The candidate whose communication hinged on TV (Berlusconi) lost 26 percentage points of visibility. This translated into a vote share loss of 2 percentage points, determining his defeat by 0.4 percentage points. The effect of TV visibility on votes is found to be negligible in absolute terms. However, it becomes pivotal in a close election, when information on candidates is more valuable.