Research: When local newspapers close, corporate corruption goes up

Corporate misconduct increases when local newspapers close down, according to a US study.

The new research said the local press is an “important monitor” of facilities and potential environmental, labour relations, employment discrimination, securities fraud, workplace safety and consumer protection violations.

The study, published by the Journal of Financial Economics, found increased violations and penalties in the three years after a local newspaper closed down.

The number of violations at corporate facilities increased by 1.1% and penalties increased by 15.2%, it said.

The authors pointed out that their empirical tests relied on known violations, as those that had gone undetected were unobservable. Therefore these figures are likely to be a low estimate.

“These findings indicate that local newspapers are an important monitor of corporate misconduct,” the paper said.

It added that the findings suggested the closure of local newspapers led facilities to incur violations that carry higher penalties on average.

In addition the results suggested that facilities of more visible firms increased misconduct more strongly following the closure of a local newspaper.

Changes in local press monitoring were therefore believed to affect company behaviour and increase their levels of misconduct.

The effect was most concentrated in US counties with only one local newspaper, meaning their closure left a wider gap in coverage.

The type of stories that can keep corporate facilities in check:

Rocky Mountain News, closed in 2009: Broke the story of fraudulent behaviour at Qwest, a publicly listed communications company headquartered in Denver
Tampa Tribune, closed in 2016: Reported on fraudulent transactions at Wachovia Bank in Tampa
Seattle Times: Frequently breaks stories about Boeing’s 737 MAX incident developments
Los Angeles Times: Broke Wells Fargo account fraud scandal in 2013

The study used a dataset from the Corporate Research Project of Good Jobs First’s Violation Tracker which collected more than 310,000 examples of civil and criminal cases brought against firms that resulted in enforcement action since 2000. This was analysed alongside a sample of 33 US daily newspaper closures in 45 counties between 2003 and 2015.

The authors noted that the local press provides greater coverage of local companies than national newspapers and that they could be especially effective at discovering misconduct because of their connection and proximity to local sources such as employees and suppliers.

They said: “Local newspapers play a central role in achieving wide dissemination of information because they provide the national press with credible information on local misconduct.”

However they had cited previous studies to raise concerns that the reliance on local advertising revenue could result in pressure for overly positive coverage. Even those that rely more heavily on subscription revenue could risk upsetting their readers if the firm is a major employer in the area. But these concerns appeared to be largely unfounded.

The authors said the study provided the “first systematic evidence showing that the local press is an effective monitor of corporate misconduct”.

The survey was written by Jonas Heese of Harvard Business School, Gerardo Pérez-Cavazos of the Rady School of Management and Caspar David Peter of the Rotterdam School of Management.

Their findings also raise further alarm about the consequences of local newspaper closures. Last year a US Senate report raised concerns about news deserts, with 200 counties lacking a newspaper and half of all US counties down to just one.

UK research last year linked local newspaper circulation and voter turnout and found that a drought of journalism in some areas was potentially “catastrophic” for a healthy democracy.

Previous US studies cited in this research have suggested areas with less local news provision see higher levels of corruption from politicians.

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