Do Local Newspapers Contribute to Geographic Commonalities?

Abstract

Prior research documents that firms in close geographic proximity tend to share commonalities in various outcomes and practices. Because local newspapers are important channels for discovering and sharing information about local conditions that is likely to be relevant for various firm decisions, we examine whether local newspapers contribute to geographic commonalities. We find that firms in metropolitan statistical areas (MSAs) with more local newspapers have more similar (i.e. less disperse) stock returns and stock market betas, indicating that local newspapers contribute to commonalities in overall fundamentals among co-located firms. We also find that the level of investment – a key driver of firm fundamentals - is more similar among firms in MSAs with more local newspapers, suggesting that local newspapers contribute to a shared understanding of investment opportunities available to co-located firms. The effect of local newspapers on geographic commonalities is more pronounced for newspapers with smaller circulations, which have been shown to be more dedicated to covering local news than larger newspapers. The effect is also more pronounced in communities that have adopted the inevitable disclosure doctrine, which limits labor market mobility – an alternative channel for information sharing. In addition, we find that the impact of local newspapers is most significant in promoting commonalities among local industry clusters. Using a difference-in-difference design to bolster causal inferences, we find that same-industry firms exhibit less similarities after local newspaper closures, which are exogenous shocks to local news coverage. Collectively, the results show that local media is an important driver of previously documented geographic commonalities.