Advertising Bias in Newspapers
Final Report Abstract
In this project, we provide answers to four research questions, all centered around the (un)intended consequences of advertising. First, in the main part of the project, we analyzed how newspapers report about their advertising clients. We find clear evidence, that newspapers report more often and more favorably about firms that advertised a lot with them in the previous four weeks. Interestingly, this effect is mediated by reader sophistication: newspapers with a more sophisticated readership report in a less biased manner about their advertising clients. Second, extending the scope of the project to financial markets, we find that product market advertising increases attention towards the advertising firm not only among potential consumers, but also among potential investors: Wikipedia search volume for firms with abnormally high advertising levels increases markedly. However, increased attention among investors is not translated into better liquidity or higher returns of advertising firms. This ‘non-result’ contradicts earlier findings from the literature, showing a positive correlation between advertising and stock market returns. However, these earlier findings are based on low-frequency, annual data on advertising. Using our high-frequency dataset we are able to show that the results reported in the literature are due to reverse causality, i.e., firms that do well experience large stock market returns and subsequently advertise more, but not vice versa. Third, we analyzed how advertising is used by corporations as a strategic tool during the M&A process. We find that acquirers increase advertising right after the announcement of a takeover attempt to convince target shareholders of the quality of their firm. Target shareholders increase advertising in the quarter prior to the announcement – either to receive better terms in the deal or as a takeover mechanism (by transferring tangible assets like cash into intangible assets like brand value, which might be of less value for a potential acquirer). Finally, we moved the focus of the main analysis from the firm-level to the product level: we analyzed the impact of advertising of pharmaceutical firms on the way in which newspapers report about the drugs produced by these firms. We find evidence of severly biased reporting even in this sensitive context: newspapers report more favorably about the drugs of their advertising clients, they are significantly less likely to mention side effects and they even report significantly less about drug safety alerts by the FDA. Overall, our results have important implications for the discussion on the independence of the press from corporate influence. They suggest to think about stricter separation of the advertising and editorial office of newspapers to ensure insulation of content from advertising clients influence.
Publications
- (2019): Pharmaceutical advertising biases media reports on drug safety
Focke, F., Niessen-Ruenzi, A., and S. Ruenzi
- (2020): A Friendly Turn: Advertising Bias in the News Media
Focke, F., Niessen-Ruenzi, A., and S. Ruenzi
(See online at https://doi.org/10.2139/ssrn.2741613) - (2020): Advertising, Attention, and Financial Markets, in: Review of Financial Studies 33, 4676-4720
Focke, F., Ruenzi, S., and M. Ungeheuer
(See online at https://doi.org/10.1093/rfs/hhz142) - (2020): M&A(dvertising)
Hillert, A., A. Kunzmann, and S. Ruenzi
