All publicity equals good publicity for UK company directors, according to new research
Bad publicity surrounding a chief executive does not necessarily affect the value of their company, according to a recent study by the University of Cambridge Judge Business School.
The research found that more media coverage of a chief executive can channel “investor recognition” and can also help CEOs extract higher compensation.
“The study shows that, in the long term, if a company’s CEO attracts more media coverage, the firm will do better in terms of valuation,” says Bang Dang Nguyen, director of the MPhil in Finance Programme at Cambridge Judge Business School. “The study shows that additional coverage of a company’s CEO helps fill that information gap for investors and this contributes to additional valuation.”
The study – published in the Quarterly Journal of Finance – found that companies with the highest-level of CEO media coverage (positive or negative) outperformed in value by eight per cent, compared with the lowest level (of media coverage).
Because of incomplete information, investors rely, at least partially, on public information to make decisions, according to the research. The study found that media coverage may help in removing some uncertainty, bringing in more transparency, adding credibility and highlighting the viability of future projects.
Entitled Is More Good News Good News? Media Coverage of CEOs, Firm Value and Rent Extraction, the study focused on Fortune 500 chief executives and covers a 10-year period beginning in 1992. It found the average CEO in the sample was mentioned in 57 news stories a year, 13 of them positive.
To read an extraction of the study, click here