Pope Breaking News: The Effect of TV Coverage on Voters and Financial Markets∗ Giulia Capriniy [email protected] This is a preliminary draft (Jan 2019) Please do not circulate Abstract To what extent does a politician's TV coverage in campaign drive up his vote shares? Do investors of politically-connected firms take into account candidates' TV exposure? This paper addresses those questions by exploiting a natural experiment: during the 2013 Italian electoral campaign Pope Benedict XVI suddenly resigned, and politics TV coverage dropped sharply. I show that Berlusconi's lower exposure (-26 p.p.) caused a vote share loss of 2 p.p., which ultimately determined his defeat. On the stock market, the arrival of Pope news lead investors to penalize Mediaset (Berlusconi's broadcaster), in anticipation of looser political ties. Keywords: TV coverage, Media, voting, political ties JEL codes: L82, D72, G14, G41, Z12, Z13 ∗I am grateful to Guido Legnante and to Paola Migliorino for sharing their data. I thank Alberto Abadie, Ruben Durante, Massimo Guidolin, Andrea Ichino, Eliana La Ferrara, David Martinez de Lafuente, Andrea Mattozzi and Paolo Pinotti for their helpful suggestions. I also thank participants to the MEWG seminars at EUI for their comments and feedback. yEuropean University Institute (EUI) 1 Introduction \The instrument (the telescreen, it was called) could be dimmed, but there was no way of shutting it off completely" (George Orwell, 1984). When elections approach, candidates become ubiquitous in TV: they participate to debates, grant interviews, give speeches, and exploit any chance to increase their exposure. In the US, an equal-time rule specifies that television broadcast stations must provide an equivalent opportunity to any opposing political candidates who request it. Similar laws have been adopted in other countries (e.g. Italy, France), where broadcasters must accord each contender precisely equal speaking time and coverage in the final weeks of the campaign. Altogether, those regulatory efforts indicate a worldwide consensus on the relevance of TV exposure to electoral outcomes. A growing body of research suggests that years of TV fruition can affect citizens' political decisions (DellaV- igna and Kaplan, 2007; Campante and Hojman, 2013; Durante, Pinotti and Tesei, 2017;). Moreover, there is evidence that politicians' campaigns can affect voters in different ways, such as by priming the issues underlying vote choice (Iyengar and Simon, 2000; Druckman, 2004) or images of integrity and leadership (Funk, 1999; McGraw and Ling, 2003; Druckman and Holmes, 2004). But to what extent does candidates' TV coverage drive up their votes in the short span of a campaign? Despite the general consensus, little conclusive evidence has been produced to this effect. A plausible reason is that the impact is difficult to identify: TV coverage and vote shares will be correlated even if exposure did not affect voters' support, as both depend on a politician's prominence in the political arena. In this paper I avoid this endogeneity problem by exploiting a natural experiment. On February 11 2013, during the last weeks before the Italian general elections, the Pope Benedict XVI announced his intention to renounce to the papacy. The event was unexpected, given its rarity (it only occurred 5 times in history, and last in 1415). After the Pope's declaration, Italian media immediately shifted to a blanket coverage of related contents, causing a marked turn of attention from the upcoming elections. I identify the effect of exposure in TV on vote shares by instrumenting candidates' visibility with the presence of Pope news. I measure voters' support to candidates in two ways: first with a stock-market-based index, then using survey data. The results from the two analyses are concurrent: I find that the decline in visibility translated into a significant vote share loss for the right-wing leader Silvio Berlusconi, a candidate whose communication strategy heavily relied on TVs. His dip in television exposure (-26 percentage points) translated into a vote share decline of roughly 2 percentage points, an effect large enough to cause his electoral defeat (the left-wing won by 0.4 percentage points). I assess the robustness of the TV-visibility mechanism by exploring the channels through which Pope news could have affected Berlusconi's vote share. A large part of his former voters appears to have shifted towards the new-comer in the political arena \Movimento 5 Stelle" (M5S). This group's communication strategy hinged on the internet, but it was otherwise largely comparable to that of Berlusconi's party: both strongly depended on media-savvy and charismatic leaders (Fella and Ruzza, 2013; Jones and Pasquino, 2015; Verbeek and Zaslove, 1 2016; Durante, Pinotti and Tesei, 2017). I find that the Pope's announcement had no significant effect on interest in politics, voting participation or religiosity. Instead, it induced a shift in main source of political information for some of former Berlusconi voters: the 2008-supporters who in 2013 switched to M5S. In fact, the TV shock significantly increased their probability to resort to internet as principal source of political information. Therefore, I argue that the main mechanism behind Berlusconi's vote loss after Pope news is the exposure to the different information environment of some former supporters, who changed their political affiliation in favour of the party with an internet-centred propaganda. Having proved the common thought about the relationship between TV coverage and votes, this paper poses an ancillary question: do investors of politically-connected firms take into account candidates' TV exposure? I investigate the effect on the financial market by studying whether the stock price of firms connected to candidates is responsive to their TV coverage. I analyse the case of Mediaset (Berlusconi's broadcaster), whose business has been found to benefit from Berlusconi's office holding (Della Vigna, Durante, Knight and La Ferrara, 2017). I find that when Pope news arrived, Mediaset shares underperformed an otherwise similar synthetic control portfolio. Investors believed the coverage shock to decrease Berlusconi's vote shares, and they devalued Mediaset in anticipation of its looser future political ties. I provide supportive evidence to exclude potential alternative mechanisms (such as lower Mediaset advertising revenues), and I pass the results to robustness checks. This paper relates to a wide and growing body of empirical studies on media economics, and in particular on the influence of TV on voting behaviours. In this strand, several studies have assessed the effect of long exposures to different types of TV contents, such as news (DellaVigna and Kaplan, 2007; Enikolopov et al., 2011) or entertainment programs (Durante, Pinotti and Tesei, 2017). This work contributes to this literature by providing a causal estimate of the impact of TV coverage on votes in the short span of the campaign. The findings are coherent with the idea suggested by Prat (2018), namely that relative media power can be well approximated by attention shares.1 He finds that each of the three biggest US media groups could individually determine the results of most presidential elections, with broadcasters being the most powerful players among the media. A second wide literature to which this paper relates studies connections between firms and politicians (see, e.g. Khwaja and Mian, 2005; Faccio, 2006; Fisman, Fisman, Galef, Khurana and Wang, 2012; Cingano and Pinotti, 2013; Bertrand, Bombardini and Trebbi, 2014; Tahoun, 2014; Akey, 2015). The present work exploits the event-study methodology, which owes its diffusion to researches such as Roberts (1990), Fisman (2001), and Johnson and Mitton (2003). This paper applies the synthetic control method (Abadie and Gardeazabal, 2003; Abadie, Diamond and Hainmueller, 2015) to stock-market data (e.g. Guidolin and La Ferrara, 2007; Acemoglu, Johnson, Kermani, Kwak and Mitton, 2016). The results on the negative reaction of Mediaset to the TV visibility shock are congruent with the findings by Della Vigna, Durante, Knight and La Ferrara (2017). The authors provide evidence of firms shifting their advertising spending towards Mediaset when Berlusconi was in office in the hope of obtaining political benefits; this, in turn, increased Mediaset profitability in coincidence with Berlusconi's office holding. 1Prat defines the power of a media organization as its ability to induce voters to make electoral decisions they would not make if reporting were unbiased. 2 The remainder of the paper is organized as follows: After introducing the background (section 2), I perform an instrumental variable analysis to estimate the effect of TV coverage on a stock-market based measure of Berlusconi's electoral support (section 3). Then, I repeat the analysis using survey data, and I test the mech- anisms (section 4). In section 5, I turn to study the impact of the TV shock on the Cumulative Abnormal Returns of Mediaset, comparing the latter to a synthetic control portfolio. I then test the channel for the Mediaset decline and I perform robustness checks (section 6). Section 7 concludes. 2 Background: Berlusconi and the 2013 elections The electoral campaign for the 2013 Italian general elections started with the selection of party leaders in the late fall of 2012 and culminated with the elections on February 23, 2013. At the end of 2012, six predominant parties were animating the Italian political debate: the four bigger ones were \Partito democratico" (PD), \Popolo della libert`a" (PDL), \Movimento Cinque Stelle" (M5S), and \Scelta civica" (SC ), respectively guided by Pierluigi Bersani, Silvio Berlusconi, Beppe Grillo and the former Prime Minister, Mario Monti2. At the onset of the campaign, Berlusconi was under criminal investigation (since 2011) for alleged sexual relationships with minors and abuse of office, and in January 2013 his the request to adjourn the trial was rejected. In addition, he had just closed (in December 2012) an extremely long and expensive divorce.