Negative Shocks and Advertising Strategy: Evidence from Chinese Newspapers

Abstract: This study investigates whether business entities influence newspaper coverage through advertisement spending. Leveraging large-scale data on newspaper advertisement records and a difference-in-differences strategy, we identify a significant decrease in newspaper coverage for misconducted firms whose advertising spending in newspapers is higher compared with those with lower advertising spending. The effects are stronger for misconduct committed non-locally, indicating a higher cost of media capture in losing local readership. Further analysis reveals that politically connected companies are less likely to capture newspapers while the existence of market competition significantly reduces it.