The Journal of Applied Business Research – July/August 2015 Volume 31, Number 4 Copyright by author(s); CC-BY 1277 The Clute Institute The Impact Of Media Independence On Firm Performance: A Panel Data Analysis From Emerging Markets Omar Farooq, ESSCA - Ecole de Management, France Mounia Rbiha, Ph.D., Al Akhawayn University in Ifrane, Morocco Samir Aguenaou, Ph.D., Al Akhawayn University in Ifrane, Morocco ABSTRACT Can media have any influence on firm performance? Do firms in countries with more independent media perform better than firms with less independent media? This paper seeks to answer these questions by documenting the relationship between media independence and firm performance in emerging markets. Using a dataset from twenty seven emerging markets, we show significantly better performance of firms headquartered in countries with relatively more independent media than firms headquartered in countries with relatively less independent media during the period between 2007 and 2011. We argue that independent media reduces information asymmetries for stock market participants. Consequently, it is more difficult for managers to expropriate, thereby improving performance of firms. Our results indicate that media can play a substitute role for traditional governance mechanisms in emerging markets. Keywords: Media Independence; Information Asymmetries; Firm Performance; Emerging Markets 1. INTRODUCTION merging markets are characterized by high information asymmetries. Luez et al. (2003), for instance, document that managers do not disclose the true information about their firms in emerging markets. In another related study, Fan and Wong (2002) document similar findings by showing that the quality of information disclosure, measured by the relation between reported earnings and stock returns, is low in emerging markets. 1 These findings have given rise to a vast amount of literature that is aimed at identifying the mechanisms via which information environment of firms can be improved. This strand of literature has identified several country-specific as well as firm-specific factors behind inefficient information environment in emerging markets. 2 Luez et al. (2003), for example, relate information asymmetries with country-level factors and document that information environment of a firm improves with improvement in investor protection mechanisms. They argue that strong protection limits insiders’ ability to acquire private benefits, thereby reducing their incentives to hide firm performance. While, Bae and Jeong (2007) highlight the importance of firm-specific factors by reporting that quality of disclosure is weaker for firms that are affiliated with business groups. They also document that firms with foreign ownership have lower information asymmetries. An important factor that has, however, eluded prior literature is how the extent of media independence – a country-specific factor – effect information environment of firms. Given that the media is a channel via which information gets transmitted to a large segment of society, it is intuitive to believe that media should play an 1 An important implication of low information disclosure is the presence of high information asymmetries and agency problems within firms in emerging markets. Mitton (2002) argue that high information asymmetries adversely affect firm performance. He shows that firms with higher disclosure quality (ADRs and auditors from big-six accounting firms) outperform other firms. 2 Claessens and Fan (2003) conduct survey of literature and report that concentrated ownership structures, presence of family firms, cronyism, inadequate governance mechanisms, and ineffective institutional framework are some of the more important factors that lead to poor information environment of firms in emerging markets. E