Corporate Governance Role of the Media

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The Corporate Governance Role of the Media
Alexander Dyck* Harvard Business School And Luigi Zingales University of Chicago May 2002
Abstract Do media play any role in corporate governance? In this paper we argue that media pressure corporate managers and directors to behave in ways that are “socially acceptable”. Sometimes this coincides with shareholders’ value maximization, others not. We provide both anecdotal and systematic evidence that media affect companies’ policy toward the environment and the amount of corporate resources that are diverted to the sole advantage of controlling shareholders. Our results have important consequences for the focus of the corporate governance debate and for the feasibility of reforms aimed at improving corporate governance around the world.

* We thank Mehmet Beceren for assistance in preparing the data and Rakhesh Khurana, Jay Lorsch,, Forest Reinhardt, Richard Vietor, Andy Zelleke and seminar participants at Harvard Business School for helpful comments on an earlier draft. Alexander Dyck gratefully acknowledges financial support from the Division of Research of Harvard Business School and Luigi Zingales from the George Stigler Center at the University of Chicago.

In April 1992 the Wall Street Journal published a strange ad. It was a full-page picture of a silhouette of the Board of Directors of Sears Roebuck with the title: the “non-performing assets of Sears”. The ad, paid by shareholder activist Robert Monks, exposed all the directors, who were identified by name, as responsible for the poor performance of Sears’stock. The directors, greatly embarrassed by the ad, chose to adopt many of the proposals advanced by Robert Monks, in spite of the fact he had received only 12% of the votes in the previous election for board members and failed to get a seat on the board. The market welcomed this change with a 9.5% excess…...

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