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Geographic Location, Media Coverage and Investor Reactions

This paper examines a previously unexplored dimension of press coverage: geography. We ask whether regional newspapers, located near firms, provide greater coverage relative to national newspapers, whether local investors, located near firms, disproportionately respond to this regional coverage, and whether there are resulting differences in returns. Our results show that regional newspapers do provide greater coverage: They cover nearby firms more often and with longer articles than national newspapers. They also issue a higher number of isolated articles, which are not clearly prompted by a management announcement or other news event, and issue longer articles following earnings announcements. We then compare the use of regional press information by local and non-local investors. We find that local investors react significantly more strongly than non-local investors to articles published in regional newspapers, even when restricting to investors who already hold the stock and thus have strong incentives to pay attention to firm-specific news. We find that the reaction of local investors to regional newspapers is significantly stronger among investors in more literate cities, suggesting that the choice to “read the paper” contributes to the stronger reaction of local investors, even controlling for costs to access the newspaper. Finally, we find that local investor trading predicts higher returns than non-local investor trading only on news article days, with the strongest difference for regional newspaper articles. We also find little difference in local and non-local investor trading before news, and little difference in returns following non-news days, suggesting that a large part of the local advantage documented in prior literature is related to coverage by the press.