Paul Maidment, editor of Forbes.com and executive editor of Forbes, had some ideas as to why the field of business journalism missed the Enron scandal before it exploded, and they come from two academics who have studied the relationship between the business media and the market.
Maidment is referring to a paper by two economists, Alexander Dyck now at the University of Toronto and Luigi Zingales of the University of Chicago, that argues that market forces drive the business media to behave they way that they do.
Added Maidment: “In the case of Enron, Zingales says that while there was sufficient accounting transparency, what was lacking were the incentives for uncovering negative information about a company. And he and his co-author offer evidence that these incentives diminish during stock market bubbles.
“Their argument is as follows: The primary point of information collection about listed companies is financial market speculators. The main way to profit from negative information is to short the stock. During periods of stock market euphoria, short positions are highly dangerous. Hence, during bubbles short-sellers will be few and far between, and thus the search for negative information light.”
Interesting conclusions. It makes me want to get a copy of this paper. If I can find it online, I will post the link.
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