TV impacts what we talk about at the water cooler, but how is it affecting executives’ decision making?
What TV viewers consume can shape their decisions and beliefs. In today’s polarized political climate, viewers of MSNBC often have completely different interpretations of current events than viewers of Fox News.
Business executives, however, need to make decisions based on their companies’ best interests and bottom lines. They shouldn’t be swayed by conservative- or liberal-leaning media—right?
Lily Li, assistant professor in the Fox Department of Finance, investigated the impact of media on executives’ decision making by focusing on two ends of the ideological spectrum: conservative local TV news and investment in corporate social responsibility (CSR).
According to Pew Research Center, local TV news is the most trusted source for Americans. “The local TV news has outpaced national news outlets both in terms of trust scores and viewership rates,” says Li. A mostly unknown name has had a significant increase in ownership over local news: Sinclair.
Founded in 1986, Sinclair Broadcasting Group is a conservative-leaning media conglomerate. “Currently, Sinclair is the larger owner/operator of local TV stations in the U.S.,” says Li. “It is also the biggest producer of local news.” Sinclair has grown from 59 channels in 1995 to 193 channels in more than 90 designated market areas (DMAs) around the country. Its expansion over time provides a natural experiment to compare firms’ behaviors before and after its introduction into the DMA where the firm operates.
Previous research found, from studying broadcast transcripts, that Sinclair stations tend to feature more politically-charged national news with right-leaning coverage. Li, along with former colleagues Mahsa Kaviani and Hosein Maleki, compared this media influence with the more left-leaning policy of corporate social responsibility. “CSR is strongly tied to ideological beliefs, as it involves key issues where liberals and conservatives deviate from each other, including environment protection, climate change, social welfare, gun control and labor union activists,” says Li.
The researchers gathered data from 210 DMAs and 3,000 counties, covering Sinclair’s expansion from 1996 to 2016. They compared this to 2,434 firms’ CSR scores in environmental, social and governance aspects as documented by a well-known socially responsible investing database from MSCI. CSR scores increase or decrease depending on a firm’s behavior in dimensions like carbon emissions, human rights and corruption.
“We found that media persuasion takes time, but the effect is persistent and grows larger over time,” says Li. “Three years after Sinclair exposure, CSR scores drop by 0.411, which is 18% of the sample standard deviation. In four years, scores drop by 0.536, and in five or more years, they drop by 1.022.”
According to their research, executives who have been exposed to Sinclair’s broadcasts in the expanded DMAs have reduced their companies’ CSR activities. For example, a company could have chosen to stop investing in renewable energy efforts, slow down carbon offsetting initiatives or turn a blind eye to human rights violations in their supply chains. Environmental aspects of CSR were the first and largest dimension influenced by Sinclair’s introduction into a designated market area, with effects starting just one year after Sinclair’s ownership.
What happens if Sinclair keeps expanding? The researchers conclude that the media conglomerate’s expansion has had a negative effect on shareholder wealth, as CSR activities act as a long-term risk management tool.
“Reducing CSR might not impact accounting performance in the immediate future, but the stock market is forward-looking and prices in the long-term risk,” says Li.
In today’s world of highly polarized political rhetoric, executives need to be cognizant of how their media consumption informs their workplace decisions.
“The media environment matters for corporate policies,” says Li. “This is especially true for policies related to ideological beliefs.” CSR initiatives are intended to have a positive impact on firms and societies, so their advice to managers is: watch carefully.