The effect of media coverage on firms’ investor base and stock liquidity

摘要

This paper studies the effect of public attention, measured by newspaper coverage, on firms’ potential investor base and stock liquidity. Using different model specifications and methodological approaches, I identify a positive causal relationship between a firm’s public attention and the investor base as well as liquidity of its stocks. Firms covered more frequently by the mass media have a larger number of shareholders, and higher stock liquidity. In addition, I find that the effect of attention on stock liquidity is larger in small firms than in large ones. As firm size increases, the improvement in liquidity caused by additional media coverage declines. My findings are robust to different liquidity measures, and industry- and time-fixed effects. Moreover, the non-linearity problem, the reverse causality problem, the firm fixed effect, and endogenous event shocks do not appear to drive my results.