News Bias in Financial Journalists’ Social Networks

Connected financial journalists—those with working relationships, common school ties, or social media connections to company management—introduce a marked media slant into their news coverage. Using a comprehensive set of newspaper articles covering mergers and acquisition (M&A) transactions from 1997 to 2016, I find that connected journalists use significantly fewer negative words in their coverage of connected acquirers. These journalists are also more likely to quote connected executives and include less accurate language in their reporting. Moreover, they tend to portray other firms in the same network in a less negative light. Journalists’ favoritism bias has implications for both capital market outcomes and their careers. I find that acquirers whose M&As are covered by connected journalists receive significantly higher stock returns on the news article publication date. However, these acquirers’ stock prices reverse in the long term, suggesting market overreaction to news covered by connected journalists. Around M&A transactions, connected articles are correlated with increased bid competition and deal premiums. In terms of future career development, connected journalists are more likely to leave journalism and join their associated industries in the long run. Taken together, the evidence suggests that financial journalists’ personal networks promote news bias that potentially hinders the efficient dissemination of information.