Friends at WSJ Guosong Xu∗ January 28, 2020 Abstract I study the effect of the firm–journalist connections on media slant and stock returns, us- ing a dataset on the firm’s connections to Wall Street Journal reporters. When corporate events are covered by connected reporters, the news sentiment becomes markedly more favorable, leading to higher short-term stock returns and long-term price corrections. For identification, I instrument the connected coverage with the reporters’ turnover and find similar results. Connections to the media owner also matter: using Rupert Murdoch’s acquisition of the WSJ as an exogenous shock, I show that firms connected to Murdoch receive better coverage after the ownership change. JEL classification: G14, G34, G40 Keywords: News sentiment, Mergers and acquisitions, Financial journalism, Social connections ∗Department of Finance, Erasmus University, Rotterdam School of Management. Mail: Burgemeester Oudlaan 50, 3062 PA Rotterdam, Netherlands. Email:
[email protected]. For helpful comments I thank Nihat Aktas, Yakov Amihud, Bernard Black, Audra Boone, Eric de Bodt, Travers Barclay Child, Lin Willian Cong, Olivier Dessaint, Daniel Dorn, Daniel Ferreira, Eliezer Fich, Andrey Golubov, Markku Kaustia, Matti Keloharju, Cohen Lauren, Erik Loualiche (discussant), Tim Loughran (discussant), Song Ma, Mario Schabus (discussant), Ishita Sen (discussant), Paul Smeets, Noah Stoffman, Vladimir Vladimirov, Michael Weber, Burcin Yurtoglu, and participants at the 2018 European Finance Association Meeting Doctoral Tutorial, CEIBS Finance and Accounting Symposium, Helsinki Finance Summit, Paris December Finance Meeting, Aalto University, Drexel University, Erasmus University, ESCP-Europe, Fudan University School of Management, Humboldt University in Berlin, Paris-Dauphine University, and University of Strathclyde. 1 Introduction How are media stories created? A number of studies reveal that the media have an important impact on the financial market.1 Key to this relation is an author’s persuasion, views, or bias injected into the news article (Dougal et al., 2012).