Wednesday, June 29, 2011

The Attention-Grabbing Role of Bad News

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Recently, I came across an interesting white paper by Jeremiah Green et. al. looking into the sentiment biases in the media. Similar to my previous research, they find that the number of good-news events reported in the business press exceeds the number of bad-news events. Despite this positive news sentiment bias, they find that bad-news events tend to receive broader dissemination after they first occur, especially for small firms and less newsworthy events. They find evidence that this dissemination bias in favor of bad news arises because bad news grabs journalists’ limited attention, not because journalists respond to incentives to increase readership by "leading with what’s bleeding". Consistent with managers exploiting journalists’ limited attention, they find that firms in general, and large firms in particular, issue more good-news press releases than bad-news press releases.