No Such Thing as Bad PR? Media Coverage and Firm Valuation: MBA News

The old adage that there is no such thing as bad PR has been found to extend to the leaders of the world’s biggest companies – it may even help them walk away with higher levels of compensation, according to a new study at University of Cambridge Judge Business School.

Finance lecturer at Cambridge Judge, Bang Dang Nguyen, discovered that media coverage of a CEO is good for a firm’s valuation, regardless of whether the coverage is positive or negative.

“The study shows that, in the long term, if a firm’s CEO attracts more media coverage the firm will do better in terms of valuation,” said Nguyen, who performed two assessments - one for CEOs’ total media coverage and one restricted solely to positive coverage.

In this analysis, firm valuation came out 8% higher for those helmed by the CEOs who attracted the most media coverage, when compared to those with the least. CEOs with the highest amount of positive coverage – pinpointed through the use of keywords – resulted in firm valuation that was 7% higher than companies whose leaders generated the fewest positive column inches. Ultimately, it is the difference between these two gaps which suggests that volume of coverage is fractionally more important than its nature. CEOs assessed by Nguyen received mentions in 57 news stories each year - of which 13 were positive - on average.

Cambridge Judge study assesses Fortune 500 CEOs

The source of Nguyen’s data came from the CEOs of Fortune 500 companies. Rather than homing in on particular events or announcements involving a company’s CEO Nguyen looked at the long-term accumulation of all media coverage, both good and bad, in major world publications between 1992 and 2002. Firm valuation, meanwhile, was assessed using a ratio that divides market value of assets by the replacement cost of assets - Tobin’s q – named for James Tobin, a Nobel prize-winning economist who taught at Yale University.

The Cambridge Judge study, ‘Is more news good news?’, also suggests that media coverage can actively aid a CEO in claiming higher total compensation packages from their firm, not in terms of salary so much as in forms of equity, such as stocks and options.

Indeed, the study concludes that CEOs with greater media coverage were able to claim total compensation that was 4.1% higher than what they could reasonably expect to obtain from the rise in firm valuation described above.

Media coverage as channel of recognition

According to Nguyen’s study, the ties between media coverage, total compensation and firm valuation all relate to the power of the media as a channel through which investor recognition, transparency and public confidence can all theoretically be enhanced.

That CEOs are often seen as publicly embodying the company they represent is a reason why debate has often centered on whether encouraging a leader’s public exposure, and therefore ultimately, scrutiny, is wise. However, results such as these suggest that the risks of attracting negative press and media coverage may be exaggerated; any form of exposure will serve a company’s valuation better than shying away from the media altogether.

Nguyen completed his PhD at HEC Paris and is also an alumnus of a cooperative MBA program between France and Vietnam at Hanoi’s CFVG. Having previously taught at CUHK, he now directs the MPhil finance program at Cambridge Judge.