Anyone Monitoring? How Vanishing Local Newspapers Affect Firms’ Debt Structure

Joint project with Thomas Schmid

SSRN: Link

Abstract:

his paper sheds light on the economic consequences of newspaper bankruptcies and closures by analyzing how reduced local monitoring due to such “shocks” affects firms’ choice between public and private debt. For this, we compare the impact of newspaper shocks on geographically close firms with weak analyst or nationwide press coverage to firms which are less dependent on local monitoring. We find that reduced local monitoring leads to a shift from public to private debt and higher bond yields for treated firms. For identification, we rely on shocks due to non-local reasons, local matching, and size-corrected treatment measures. These findings indicate that the decline of newspapers will affect firms’ financing.