CEO Media Visibility: Are Media Stars Born Or Made? by SSRN
Stanford University – Graduate School of Business
Stanford University – Graduate School of Business
March 13, 2015
Rock Center for Corporate Governance at Stanford University Working Paper No. 204
Stanford University Graduate School of Business Research Paper No. 15-21
Abstract:
Recent literature finds that a CEO’s media visibility leads to improved career outcomes. However, the literature has been quiet about whether media coverage is naturally bestowed on CEOs for operating performance, or whether firms and/or CEOs are able to influence media coverage through strategic disclosure. That is, are CEO media stars “born” from their performance or “made” by managing the press? We develop a measure of “CEO promotion” in firm disclosures that captures the extent to which the CEO is individually represented in press releases. Specifically, our measure is based on whether the CEO is named or quoted in firm-initiated press releases, as well as the clarity and vividness of the CEO’s quotes. We find that CEO promotion is associated with a more than three-fold increase in media coverage of the CEO, and that the flow of specific CEO-related content from press releases into subsequent media articles is increasing with CEO promotion. We also find that abnormally high CEO promotion is associated with CEO entrenchment and declining future performance. Our evidence that firms and CEOs can influence CEO media coverage not only broadens our understanding of the causes and effects of CEO media visibility, but also indicates that firms can likely influence the content and context of firm-related media articles more generally.
CEO Media Visibility: Are Media Stars Born Or Made? – Introduction
Prior literature finds that a CEO’s media visibility is positively associated with job acquisition and pay premiums (Falato, Li, and Milbourn 2014; Malmendier and Tate 2009; Rajgopal, Shevlin, and Zamora 2006). These results are attributed to stakeholders using the CEO’s media visibility as a signal of his ability and efforts. However, the literature has been quiet about whether media visibility is naturally bestowed on CEOs, or whether CEOs and firms can influence media coverage of the CEO. That is, are CEO media stars born from operating performance or are they made (at least in part) by managing the press? Our study investigates the natural question of whether and how firms and/or CEOs can influence CEO media visibility.
Theoretical and empirical studies examining CEO visibility posit that the causal link between CEO media visibility and compensation is that the media tend to cover more talented CEOs. That is, CEOs that are more visible in the media are thought to be more valuable, and thus boards use this as a signal and award high-visibility CEOs with greater compensation. A logical extension of this argument is that other stakeholders use media visibility as a low-cost signal to inform transactions. For example, potential employees assume that CEOs with more media coverage are more talented, so firms with a high-profile CEO benefit from greater supply of labor (and, in turn, firms compensate the CEO accordingly).1 CEO media visibility could provide value to the firm in a variety of ways, or it could simply be used by the Board of Directors to justify providing the CEO with their desired compensation. In any case, the CEO and/or firm have an incentive to influence CEO media visibility.
Following this, our primary research question is whether CEOs and/or their firms can use strategic disclosure to affect media coverage of the CEO. When reporting on firm news, journalists face a cost/benefit tradeoff in deciding whether to write about the CEO individually. The benefit to journalists of producing media content is derived from meeting readers’ demands for relevant information. Thus, in writing about a firm news event, a journalist is more likely to cover the CEO individually when he is more relevant to the news or when coverage of the CEO increases the appeal of the article. On the cost side, journalists must expend additional resources to research and write CEO-specific content, which reduces their ability to cover other stories. We posit that CEOs and/or firms can potentially affect journalists’ direct production costs via strategic “CEO promotion” in firm disclosures, where “promotion” refers to the extent to which the CEO is individually represented in the firm’s press release.2 Specifically, we predict that CEO promotion reduces journalists’ expected costs by providing low-cost CEO-specific content, signaling to journalists that the CEO is available for further inquiries, and better catching journalists’ attention. It is unlikely that reporters are completely insensitive to production costs. However, it is an empirical question whether the CEO or firm can alter journalists’ production costs enough to outweigh the effects of opportunity costs and readership demand (or lack thereof).
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