Show notes
Arizona State University Accounting Professor Roger White is interviewed by Radio Active Magazine regular Spencer Graves. 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.1
Related research on the value of news
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,2 insider trading increases thereby reducing the efficiency of financial markets, non-profit leaders take higher wages so less of donors' money goes to the advertised purposes of their generosity,3 and workplace safety violations jump.4
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.5
Other problems with questionable accounting practices
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?
Other publications by White
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.6 Other work documents how political corruption tends to increase when newspapers die.7
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.8
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.9
The threat
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.1
Related research on the value of news
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,2 insider trading increases thereby reducing the efficiency of financial markets, non-profit leaders take higher wages so less of donors' money goes to the advertised purposes of their generosity,3 and workplace safety violations jump.4
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.5
Other problems with questionable accounting practices
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?
Other publications by White
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.6 Other work documents how political corruption tends to increase when newspapers die.7
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.8
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.9
The threat