Editorial: Newspapers & the Public’s Bottom Line

A critical ongoing narrative with undoubtedly far more consequential factors than the well-being of other elements of the national and global economies deals with the fate of newspapers in our society. A new study of the state of local newspapers that will be presented to the Brookings Institution in July is reported by Kriston Capps on the Citylab.com website and included on the Editor and Publisher website this week.

According to the working paper, spearheaded by Paul Gao, an associate professor of finance at the University of Notre Dame, “cities where newspapers closed up shop saw increases in government costs as a result of the lack of scrutiny over local deals, say researchers who tracked the decline of local news outlets between 1996 and 2015.” The survey covers 1,596 English-language newspapers serving 1,266 counties in the U.S. over the study period that included 296 newspaper “exits” (meaning closing, being absorbed by another outlet, publishing far less often or merging to form a new publication).

The study found that “disruptions in local news coverage are soon followed by higher long-term borrowing costs for cities. Costs for bonds can rise as much as 11 basis points after the closure of a local newspaper — a finding that can’t be attributed to other underlying economic conditions,” the authors say. In other words, local newspapers make a difference to the bottom line.

There are political consequences when local newspapers close, but “if you look at the municipal bond market, you can actually see the financial consequences that have to be borne by local citizens as a result of newspaper closures,” said study co-author Chang Lee, assistant professor of finance at the University of Illinois at Chicago. Three years after a newspaper closes, a city or county’s municipal bond offering yields increased on an average by 5.5 basis points, while bond yields in the secondary market increased by 6.4 basis points, statistically significant effects, according to the study.

The paper cites the case of Denver’s Rocky Mountain News, which won four Pulitzer Prizes in the first decade of the 2000s before closing in February 2009, leaving that city with only one daily, the now-embattled Denver Post. Known for its investigative reporting on local government deals surrounding the Denver International Airport, the shuttering of the Rocky Mountain News resulted in a median yield spread spread for new municipal bonds that increased by 5.3 points.

“As important as local investigative reporting may be to local capital markets, the researchers don’t expect local newspapers to rebound on their own, even though it might cost taxpayers a lot more in the long run to lose a local daily than it would be to subscribe to one,” Capps writes. Study co-author Lee concluded, “Our analysis suggests that newspaper companies, or the information they provide, is a public good and it’s worth providing. But if we don’t finance it, no one will produce it.”