The Journal of Finance

Don't Believe the Hype: Local Media Slant, Local Advertising, and Firm Value

Published: 03/27/2012   |   DOI: 10.1111/j.1540-6261.2012.01725.x

UMIT G. GURUN, ALEXANDER W. BUTLER

When local media report news about local companies, they use fewer negative words compared to the same media reporting about nonlocal companies. We document that one reason for this positive slant is the firms' local media advertising expenditures. Abnormal positive local media slant strongly relates to firm equity values. The effect is stronger for small firms; firms held predominantly by individual investors; and firms with illiquid or highly volatile stock, low analyst following, or high dispersion of analyst forecasts. These findings show that news content varies systematically with the characteristics and conflicts of interest of the source.

Resident Networks and Corporate Connections: Evidence from World War II Internment Camps

Published: 03/01/2016   |   DOI: 10.1111/jofi.12407

LAUREN COHEN, UMIT G. GURUN, CHRISTOPHER MALLOY

Using customs and port authority data, we show that firms are significantly more likely to trade with countries that have a large resident population near their firm headquarters, and that these connected trades are their most valuable international trades. Using the formation of World War II Japanese internment camps to isolate exogenous shocks to local ethnic populations, we identify a causal link between local networks and firm trade. Firms are also more likely to acquire target firms, and report increased segment sales, in connected countries. Our results point to a surprisingly large role of immigrants as economic conduits for firms.

Advertising Expensive Mortgages

Published: 05/20/2016   |   DOI: 10.1111/jofi.12423

UMIT G. GURUN, GREGOR MATVOS, AMIT SERU

Using information on advertising and mortgages originated by subprime lenders, we study whether advertising helped consumers find cheaper mortgages. Lenders that advertise more within a region sell more expensive mortgages, measured as the excess rate of a mortgage after accounting for borrower, contract, and regional characteristics. These effects are stronger for mortgages sold to less sophisticated consumers. We exploit regional variation in mortgage advertising induced by the entry of Craigslist and other tests to demonstrate that these findings are not spurious. Analyzing advertising content reveals that initial/introductory rates are frequently advertised in a salient fashion, where reset rates are not.

Don't Take Their Word for It: The Misclassification of Bond Mutual Funds

Published: 04/09/2021   |   DOI: 10.1111/jofi.13023

HUAIZHI CHEN, LAUREN COHEN, UMIT G. GURUN

We provide evidence that bond fund managers misclassify their holdings, and that these misclassifications have a real and significant impact on investor capital flows. The problem is widespread, resulting in up to 31.4% of funds being misclassified with safer profiles, compared to their true, publicly reported holdings. “Misclassified funds”—those that hold risky bonds but claim to hold safer bonds—appear to on‐average outperform lower risk funds in their peer groups. Within category groups, misclassified funds receive more Morningstar stars and higher investor flows. However, when we correctly classify them based on actual risk, these funds are mediocre performers.