CEO Visibility: Are Media Stars Born or Made?

In our paper, CEO Visibility: Are Media Stars Born or Made?, which was recently made publicly available on SSRN, we investigate whether CEOs and/or their firms can use strategic disclosure to affect media coverage of the CEO. We predict that CEOs and/or firms can reduce 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. 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. If the CEO and/or firm can effectively reduce journalists’ production costs, then the probability of the journalist writing about the CEO should increase, potentially increasing CEO visibility and its related benefits (Falato, Li, and Milbourn 2014).

Our empirical approach is to examine CEO promotion in firms’ most basic form of communication with the media—firm-initiated press releases (PRs)—and the effects of PR CEO promotion on coverage of the CEO in associated media articles. We develop a five-tiered proxy for the extent of CEO promotion within a PR. In the lowest level of CEO promotion, PRs make no mention of the CEO. The second tier is an indicator for whether the CEO is named in the PR, with the intuition being that the presence of the CEO name in the PR conveys association or contextual information related to the CEO. If providing CEO-specific contextual information reduces journalists’ production costs, signals the CEO’s availability, and/or catches the journalist’s attention, then we should observe a positive relation between CEO presence in the PR and CEO media coverage. The third tier is an indicator for whether the CEO is quoted in the PR. Journalists value quotes because they help personalize news stories, and independently obtaining a CEO quote can be expensive as there is only one source for the content. Further, providing a quote likely involves more discretion than simply naming the CEO in the PR; that is, even if a CEO cannot easily avoid being named in a particular PR, he still has discretion over whether to provide a direct quote. Our fourth and fifth tiers of CEO promotion incorporate more discretion by examining the style of the quote provided. Specifically, we use computational linguistics measures to develop binary classifications of clear quotes and vivid quotes, two characteristics that likely increase the probability of a journalist rebroadcasting the CEO’s quote. The fourth tier of promotion is an indicator for CEO quotes that are either clear or vivid, and our fifth tier is an indicator for quotes that are both clear and vivid. We then combine these tiers into one measure that ranges from zero (no promotion) to one (clear and vivid quote). Our measures of CEO media coverage are similar to those for CEO promotion: a binary for whether the reporter mentions the CEO’s name, a binary for whether the CEO is quoted in the media article, and a combined measure which has values of 0 for no CEO coverage, 0.5 for naming the CEO, and 1 for quoting the CEO.

Our sample includes 572,394 press releases (PRs) issued by S&P 1500 firms from 2003 through 2013. 36.6% of our sample observations have media coverage in the Thomson Reuters News Archive published within two days of the firm’s PR. On average, 17.6% of the media articles name the CEO, and 11.9% include a CEO quote. In univariate analyses, we find that mentioning the CEO by name in a firm-initiated PR increases the probability of being named by the reporter by 12.9 percentage points (or a 125% relative increase). CEO promotion by including a quote in a PR increases the probability of a reporter quoting the CEO by 12.2 percentage points (or a 222% relative increase), and including a clear and vivid quote in the PR increases the probability of media quoting the CEO by 17.7 percentage points (or a 320% relative increase). Regression analysis finds monotonic increases in CEO media coverage across each level of CEO promotion (i.e., from just naming the CEO up to providing a CEO quote that is both clear and vivid), even after controlling for characteristics of the news event, firm, and CEO. In sum, these results are consistent with CEO promotion having a statistically and economically significant impact on CEO media coverage.

We next investigate whether the CEO-specific content in a firm’s PR is the same content published in the subsequent media article. Specifically, we separate our sample of CEO quotes from media articles into “PR-sourced” quotes that come directly from CEO quotes in the PR versus “non-PR-sourced” CEO quotes that come from some other source. Of the media articles with a CEO quote, 42% include PR-sourced quotes. Regression tests show that the probability of a media article containing a PR-sourced quote increases significantly with the vividness and clarity of the PR quote. Importantly, when especially vivid and clear quotes are provided in the PR, the media is significantly more likely to use the PR-sourced quote as opposed to a non-PR-sourced quote. We also find that the earliest versions of a given media article are equally likely to contain PR-sourced versus non-PR-sourced quotes, but in subsequent revisions to the same article, the likelihood of including PR-sourced quotes decreases while the likelihood of including non-PR-sourced quotes increases. These results are consistent with journalists using lower-cost PR-sourced quotes when time is constrained and substituting towards non-PR-sourced quotes as resources allow.

Finally, we investigate whether some CEOs “over-promote” as a form of rent-extraction, or “under-promote” as a form of shirking. To explore this possibility, we estimate a measure of “abnormal” CEO promotion and examine its relation to CEO entrenchment and future performance. We find that abnormally high promotion is positively associated with CEO entrenchment, defined as the extent to which the CEO has influence over the board of directors (specifically, we measure entrenchment using the EIndex of Bebchuk, Cohen, and Ferrell (2009) that captures existence of six governance provisions). We find some evidence that abnormally low promotion is also associated CEO entrenchment. Turning to firm performance, we find that abnormally high promotion is associated with declining accounting performance for up to three years into the future, and some evidence of a similar association with future stock returns. We find little association between abnormally low promotion and future performance. Collectively, these results indicate that abnormally high levels of CEO promotion are detrimental to shareholders.

The full paper is available for download here.