Local newspapers limit malfeasance

This is a discussion of a Zoom interview recorded 2025-02-25 with Arizona State University Accounting Professor Roger M. White^[1] about research documenting the value of independent newspapers, especially local newspapers, in limiting malfeasance. A 29:00 mm:ss podcast excerpted from the companion video is posed here as it is released to the fortnightly "Media & Democracy" show^[2] syndicated for the Pacifica Radio^[3] Network of over 200 community radio stations.^[4]

It is posted here to invite others to contribute other perspectives, subject to the Wikimedia rules of writing from a neutral point of view while citing credible sources^[5] and treating others with respect.^[6]

Arizona State University Accounting Professor Roger White^[1] is interviewed by Spencer Graves.^[7] They discuss research documenting the value of independent newspapers, especially local newspapers, in limiting malfeasance. A 2021 research article White co-authored with Kim, Stice and Stice reported that after local newspapers die, the average dividends paid by locally concentrated, publicly traded companies on average increase. They say that's because investors demand higher dividends, because malfeasance is more likely after a watchdog newspaper dies.^[8]

White's research on the impact of local news on the cost of capital adds to a body of research documenting other problems associated with a decline in local news. For example, factories emit on average 10% more pollution,^[9] insider trading increases the efficiency of financial markets, non-profit leaders take higher wages so less of donors' money goes to the advertised purposes of their generosity,^[10] and workplace safety violations jump.^[11]

Other problems include a decline in voter participation and split-ticket voting. On average, politicians spend less money to get elected and tend not to work as hard in office. Political corruption becomes more likely and costly. And bond ratings of local governmental bodies decline, thereby increasing the cost of capital.^[12]

White and Graves also discuss potential problems with firing inspectors general, as President Trump has done since taking office earlier this year and during his first term. This should be a red flag for anyone concerned about rule of law, given the substantial documentation that senior executives can find accountants and auditors willing to conspire to defraud investors and the public. William K. Black (2005, 2013) The Best Way to Rob a Bank is to Own One (U. of Texas Pr.) documented this during the Savings and loan crisis of the 1980s and 1990s. A recent example of this was publicized with the actions of the US Securities and Exchange Commission on 2024-05-03 to fine the accounting firm of BF Borgers $12 million and ban them from further work. Reports of that action said that Borgers had filed 1,500 fraudulent filings involving 500 public companies. Trump Media & Technology Group was one of Borgers' clients. The magnitude of this fraud raises many questions. For example, how many people knew that a report they saw was fraudulent? How many looked the other way? How many were told to look the other way? How many were in the SEC vs. associated with a Borgers client? How many questionable actions by business executives would likely have been exposed or prevented by honest audits? How many customers lost how much money due to substandard products or services that would have been avoided with honest, quality audits? How many journalists suppressed this story before it finally came out?

White has other publications that relate to this topic including the following:

• A 2020 paper with Ellis and Smith on "Corruption and corporate innovation" documents how political corruption is an obstacle to corporate innovation.^[13] Other work documents how political corruption tends to increase when newspapers die.^[14]

• A 2021 paper with Deason, Rajgopal, and Waymire on "The Role of Accounting in Ponzi Schemes" notes that some Ponzi schemes use news outlets to attract customers, even though doing so increases the risks of being caught.^[15]

• A 2022 paper with Derrald and Han Stice on “The effect of individual auditor quality on audit outcomes: opening the black box of audit quality” discusses the relative roles of junior and senior members of an accounting firm in producing high quality audits.^[16]

All these effects seem likely to reduce the rate of economic growth as the quality and quantity of local news declines. As ownership and control of the media become more highly concentrated, major media may more easily deflect the public's attention from the political corruption enabled by poor media. This can create other problems, by, e.g., scapegoating immigrants and attacking Diversity, equity, and inclusion (DEI). This could in turn increase political polarization and violence including, as summarized in other interviews in this Media & Democracy series, available on Wikiversity under Category:Media reform to improve democracy.

Neff and Pickard (2024) analyzed data on media funding and democracy in 33 countries. The US has been rated as a "flawed democracy" according to the Economist Democracy Index and spends substantially less per capital on media compared to the world's leading democracies in Scandinavia and Commonweath countries. They note that commercial media focuses primarily on people with money, while publicly-funded media try harder to serve everyone, and public funding is more strongly correlated with democracy than private funding. This recommends increasing public funding for media as a means of strengthening democracy. See also "Information is a public good: Designing experiments to improve government".

[Interested readers are invite to comment here, subject to the Wikimedia rules of writing from a neutral point of view citing credible sources^[5] and treating others with respect.^[6]]

• William K. Black (2005), The Best Way to Rob a Bank is to Own One, University of Texas Press, Wikidata Q16428866
• William K. Black (2013), The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry, University of Texas Press, Wikidata Q117748831
• Stephen Deason; Shivaram Rajgopal; Gregory B. Waymire; Roger M. White (March 2021). "The Role of Accounting in Ponzi Schemes". Accounting Horizons 35, 1 (1): 29-46. Wikidata Q132720646. ISSN 0888-7993. 
• Jesse A. Ellis; Jared D. Smith; Roger M. White (November 2020). "Corruption and corporate innovation". Journal of Financial and Quantitative Analysis 55 (7): 2124-2149. doi:S0022109019000735. Wikidata Q132719539. ISSN 0022-1090. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2862128. 
• Robert Felix; Joshua A. Khavis; Mikhail B. Pevzner (2024). "The effects of local newspaper closures on nonprofits’executive compensation". Journal of Accounting and Public Policy 43. Wikidata Q132730972. ISSN 0278-4254. 
• Jonas Heese; Gerardo Pérez-Cavazos; Caspar David Peter (2024). "When the local newspaper leaves town: The effects of local newspaper closures on corporate misconduct". Journal of Accounting and Public Policy 43. Wikidata Q132732230. ISSN 0278-4254. 
• John Xuefeng Jiang; Jing Kong (2024). "Green dies in darkness? environmental externalities of newspaper closures'". Review of Accounting Studies 29: 3564–3599. Wikidata Q132730900. ISSN 1380-6653. 
• Min Kim; Derrald Stice; Han Stice; Roger M. White (2021). "Stop the presses! Or wait, we might need them: Firm responses to local newspaper closures and layoffs". Journal of Corporate Finance 69. Wikidata Q132459373. ISSN 0929-1199. 
• Hangsoo Kyung; Jonathan Sangwook Nam (30 May 2023). "Insider Trading in News Deserts". The Accounting Review: 1-27. doi:10.2308/TAR-2020-0799. Wikidata Q122897778. ISSN 0001-4826. 
• Timothy Neff; Victor Pickard (2024). "Funding Democracy: Public Media and Democratic Health in 33 Countries". The International Journal of Press/Politics 29 (3): 601-627. doi:10.1177/19401612211060255. Wikidata Q131468289. ISSN 1940-1612. 
• Derrald Stice; Han Stice; Roger M. White (2022). "The Effect of Individual Auditor Quality on Audit Outcomes: Opening the Black Box of Audit Quality". Managerial Auditing Journal 37 (8): 937-966. Wikidata Q132720426. ISSN 0268-6902.