Does News Media Affect Firm Innovation in Emerging Markets? Evidence from China

Abstract

We examine whether and how news coverage affects innovation using an extensive collection of more than 188,000 firm-specific press articles written by journalists from the most influential Chinese newspapers. We find that news coverage has a positive impact on firm innovation outputs. This positive effect is more pronounced for firms with weak internal governance and external monitoring, opaque corporate disclosure, high R&D intensity, and limited access to financing for innovation, for news articles that are related to innovation and corporate governance, and for news articles that are issued by news media that are subject to less political intervention and by socially unconnected news media. Our analysis of firm innovation strategies shows that the increased innovation outputs are a result of an increase in in-house R&D investment and innovation efficiency, rather than acquisition of innovation from external channels that can quickly increase quantifiable innovation outputs. We also find that news coverage reduces analyst earnings forecast dispersion and insiders’ tunnelling of corporate resources and managerial perks, while increasing firms’ investor base. Overall, our research provides new insights into the role of the news media in firm innovation in an emerging market, especially when firms have a poor information environment and corporate governance mechanisms, and when news coverage has high informativeness and independence.