Fearing Fox News, Democratic-leaning Companies Delayed Negative Announcements

 
 
Jonas Heese and Vishal P. Baloria explore strategies used by companies to reduce the risk of potentially negative press, focusing on Fox News and the 2000 presidential election.
 
 
by Jen Deaderick
Fox News has influenced how companies disclose financial news. Legal analyst Gregg Jarrett on the set in 2016. Source: Wikipedia Commons, CC 3.0)

The United States presidential election of 2000 took place in a simpler time. The internet was not yet a major news source, and people kept up with the world through television and print publications, as they had for decades. There was, however, one big media game changer: the Fox News Channel (FNC).

Founded in 1996 by Australian media magnate Rupert Murdoch, FNC was an unusual newcomer to the US media. While most news sources attempted to maintain at least an appearance of neutrality, Fox News delivered aggressive takes on current events, politics, and business news with what was perceived as a conservative, Republican slant. It made no secret of its ideological position, and had no compunctions about explicitly attacking Democratic causes and politicians on its most popular shows.

Fox News Channel had spread rapidly by the 2000 presidential election, its expansion fueled by the wealth accrued by Murdoch and his wildly successful media empire. The speed and breadth of this growth provided economic researchers with a natural experiment to explore the impact of a specific media source on the business landscape.

"Depending on what the media reports on, it can actually create reputational costs for firms," says Jonas Heese, an assistant professor in the Accounting & Management Unit at Harvard Business School. Heese studies drivers of regulatory behavior as well as the resulting decision-making process of managers within regulated organizations.

In the paper The Effects of Media Slant on Firm Behavior, forthcoming in the Journal of Financial Economics, Heese and coauthor Vishal P. Baloria explore strategies used by companies to reduce the threat of politically slanted negative press, focusing on FNC and the 2000 presidential election.

"Depending on what the media reports on, it can actually create reputational costs for firms"

The researchers discovered that Democratic-leaning firms tended to delay releasing information that Fox News Channel could use to attack them in the months leading up to the election. Specifically, the firms chose to delay releasing disappointing financial information until the election was over. However, such delays happened only if those firms were located in areas where FNC was available.

Before the passage of the Bipartisan Campaign Reform Act of 2002, which put a cap on soft money donations to national political parties, firms were allowed to make large donations to parties whose proposed policies they believed would be of benefit to them, and they did so openly. This made it easy for FNC to determine which firms were Democratic-leaning in the run-up to the 2000 presidential election—looking at whether they had donated to George W. Bush, the Republican nominee, or to Al Gore, the Democratic candidate. The researchers found that during this time, Fox News programs devoted a lot of airtime to discussing soft money contributions by firms, with a particular focus on those that had contributed to the Democratic Party.

Heese and Baloria, an assistant professor of accounting at Boston College’s Carroll School of Management, were curious to learn how firms responded to this news coverage. The researchers looked closely at firms that were located in areas where FNC was broadcast.

The structure of the cable industry made it a useful component to the study, Heese explains. While cable providers are regionally or nationally based, they negotiate individual contracts with each town or city they serve, after bidding against other cable providers for the chance to do so. They then, in turn, receive fees from broadcasters to be included in their limited channel lineup in each area.

Fox News, backed by Murdoch's wealth, offered particularly large fees to cable providers to be included in their lineups, which spurred the channel's rapid growth. "They reached out to all these local cable companies and gave them financial incentives to broadcast Fox News instead of some other competitor," Baloria says. "So, at the beginning, they got about $10 per subscriber, which was a relatively big financial incentive."

The researchers studied the largest markets, regardless of the political leanings of the area. As they explain in the paper, FNC was frequently broadcast in both Democratic- and Republican-leaning areas of the country, mitigating the possibility that a Democratic-leaning firm might already be more vulnerable in areas that received the channel as part of their cable plans.

PR problems with real costs

Public relations issues have long been a complicated concern for firms, Heese says. For example, delaying major layoffs or plant closures can delay negative media coverage, but it forces firms to bleed money—paying salaries or running plants that are no longer value-enhancing. Thus, any decision to delay for PR reasons would be a strategic one, not to be taken lightly.

Baloria and Heese saw the lead-up to the 2000 election, the first election on which Fox News would have an impact, as a uniquely clear-cut situation. This would be one time, they theorized, that executives at firms that had donated to the Democratic Party, knowing their firms were vulnerable to the FNC shows' on-air attacks, would potentially delay the release of bad financial news until after the election, despite the cost.

Using Fox News data in 35 states between 1998 and 2003, and determining the areas in those states where FNC was available, the researchers pulled together their sample of companies in those areas. After filtering out cross-listed foreign firms—"foreign firms are legally not allowed to influence electoral outcomes in the United States"—they looked at soft money donation records, and categorized the remaining firms as Republican-leaning, Democratic-leaning, or non-political.

Focusing on larger firms, which were more likely to be targeted by Fox News, and firms whose public image had more impact on their stock prices, the researchers determined that the Democratic-leaning firms located in areas where FNC was available did seem to delay announcing layoffs or releasing disappointing financial information until after the presidential election. The behavior of Democratic-leaning firms in areas with no access to FNC did not change. Non-political firms didn't change their behavior at all, no matter the availability of FNC in their areas.

"Academically, it would be much more difficult to do a similar study in today’s situation because of social media"

This, they concluded, suggested the direct influence of Fox News Channel over the Democratic-leaning firms' behavior.

A less-connected world

Heese notes that while it is tempting to see significant parallels between the influence of Fox News on firms in the time period surrounding the 2000 presidential election and its influence during the election of 2016, it is worth repeating that the media landscape was very different in 2000. The few social media outlets that existed were extremely basic, and their membership bases were limited.

Friendster, the first website to resemble the social media outlets we have today, was still two years away from release in 2000. In contrast, Facebook currently has over 2 billion monthly users, more than a quarter of the estimated world population; Twitter has more than 328 million active members. In contrast, The New York Times has 2.2 million digital-only subscribers, and the cable news networks are doing well when their prime-time viewership hits a million.

“It’s much more complex today,” Heese says. “Academically, it would be much more difficult to do a similar study in today’s situation because of social media.”

Instead, he sees the study as a confirmation that public relations managers at major firms have been paying close attention to the shift toward politically slanted, openly subjective journalism over the last several decades.

“One could make the argument that if you look at the current media landscape, it’s even more polarized,” Heese says. “Firms are trying to use very different forms of communication. They use Twitter to communicate. Investor relations departments become more and more important in companies, and companies invest more and more in those departments. I think companies are pretty aware of how important it is to get their side of the story out there, and how damaging media reports can be.”

Jen Deaderick is a writer based in the Boston area.

Related Reading:

Playing Favorites: How Firms Prevent the Revelation of Bad News
Regulators Ease Up on Companies Generating Political Benefits

What do you think?

Have you witnessed companies change how they normally do business because of the threat of bad PR?

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