Does Greater Public Scrutiny Hurt a Firm’s Performance?
Public attention to a firm may provide valuable monitoring, but it may also have a dark side by constraining management’s decisions and distracting it. We use inclusion in the S&P 500 index as a positive shock to public attention. Media coverage, Google searches, SEC downloads, SEC comment letters, shareholder proposals, analyst coverage, and lawsuits increase following inclusion. Post-inclusion performance falls and is negatively related to the increase in attention. Included firms’ investment and payout policies become more similar to those of index peers and the increase in similarity is positively related to the size of the attention increase.
Bennett is from the AB Freeman School of Business, Tulane University, Stulz is from the Fisher College of Business, The Ohio State University, NBER and ECGI, and Wang is from the Lancaster University Management School. We are grateful for comments from Harry DeAngelo, Murillo Campello, Sinan Gokkaya, Kevin Mulally, and seminar participants at Cornell and the University of Central Florida. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.