Media Exposure Influence Upon BVB Listing of Four Main Companies

MEDIA EXPOSURE INFLUENCE UPON BVB LISTING OF FOUR MAIN
COMPANIES
Table of Content
1. Introduction.3
2. Problem hypothesis.6
2.1 The perception of financial media.8
2.2 Impact on financial news.10
2.3 The influence of financial media.11
3. Case study: media exposure influence upon four main
companies of BVB...14
3.1 Additive decision model..15
3.2 Bucharest stock exchange16
3.3 The four companies..18
3.4 Method and data collection..19
3.5 The hypotheses.21
4. Conclusions...25
References..27
Appendix28

COMPANIES
1. Introduction
The role of the mass media has during the past decades become more and more influential
and with an increasing range of media channels the possibility to supply the population with
news is easier than ever. Over the years media effects on individuals perceptions has
frequently been discussed and increased media coverage has contributed to an increased
interest from the general public regarding the financial markets and institution. Mass media
outlets, such as newspaper, play an important role in disseminating information to a broad
audience, especially to individual investors. If we consider online subscriptions and multiple
readers per copy, the actual readership of the printed press is even larger, and certainly far
broader than other sources of corporate information such as analyst reports. Given mass
medias broad reach, one might expect it to affect securities markets. Interest in the relation
between media and the market has been on the rise among both researchers and practitioners.
In order to analyze the effect of the mass media to the market, we need to examine both the
market and the number of times the companies have been mentioned in the news.
The decision on whether to go public or not is a frequently discussed issue within the field of
corporate finance. This dilemma has been mentioned quite a lot of times in the textbooks but
it hasnt been analyzed in very much details. An Initial Public Offering (IPO) imlies the
possibility for a company o become quoted on the Stock Exchange and allows its shares to be
publicly traded on the market. These IPOs are conducted on the primary markets, defined as
markets in which corporations raise funds through new issues of securities. The motives for a
company to go public are several and they vary from one company to another. The
conventional theories in business claim that going public is a natural stage in the growth
process of any firm; however this is not always the case in reality. There exist several large
corporations in the world that successfully operate in the developed capital markets that still
are held private, because they consider that going public is not always the best way to grow
and prosper.
When a company is taking IPO into consideration it has to carefully analyze, plan and
prepare to go public, because this first step to the new development is the most crucial for the
enterprise. The company has to be able to act effectively after the quotation. The timing of the
quotation also plays a crucial part for the company to obtain established goals and the market
conditions determine the right point of time for a company to be registered on the stock
market.
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Lets consider a scenario where stock prices are dropping and the mood of the investors is
quite depressed. In this environment it is not advisable for a company to go public and try to
attract investors, because of the overall economic depression. An example might be the
financial crisis of 2008 and its effects. There were not many companies that have registered
immediately after the fall of prices in September of 2008. In this kind of environment that is
feeling a drastic recession, companies are only thinking about cutting costs and surviving.
Going public isnt the first thing that comes to the minds of new companies that have thought
of implementing the IPO. This usually has to do with negative outlooks and inferior analyses,
but it can also be explained by psychological behavior. There have been some studies that
discuss how the human psychology influences more stock markets and mass behavior than
some more economical market theories that develop their ideas on efficiency, transparency
and information accessibility. Investment Banks have the major function of intermediaries
and advise the companies about pricing strategies, information distribution and number of
share to be offered. The play a major role on the stock market because they have the power
and influence to create artificial price increase or price drops. The decision regarding the
price of shares offered is principally a question between the company, the owners and also the
companys adviser which usually is an Investment Bank. The price is often based on a
judgment of the companys value. This evaluation is being calculated using discounted cash
flows and also comparing different business and financial rations between the companies
registered on the market and also the competitors. These valuations are the foundation of any
pricing strategy that decides the actual price per share.
In theory, all relevant public information regarding a stock should be reflected in the price per
share. This should be implemented in a theory of efficient markets which implies that share
price movements are reflecting the correct value of a company and only if new information is
released price movements will occur, and thereby be added into the share price. In these kind
of efficient markets there is no chance for abnormal profits because of the assumption that
present and past information is immediately shown in the current price.
Prior to the quotation and before the company starts trading on the stock market there must be
an initial price established. This fixed price is offered to all the investors and potential
financiers which was established by the companys board of directors and financial manager.
Although this is the most common way, there are some risks that have to be taken into
consideration. There is a risk that investors will not accept the offer and that the shares will
not be fully subscribed. This is usually the case when the initial price is set too high by the
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directors estimations. On the other hand if the company offers a price that is below the
market value, the company shares are then underpriced which is very common in the activity.
This underpricing is more favorable for the investors who will prefer to make profit from
trading while the company might not obtain the possible capital. The best scenario is the
golden middle which creates a large demand for the shares by creating a reasonable initial
price that attracts investors to subscribe shares before the prices are going to rise.
There different methods by which companies attract more investors. For example, if a
company is going to choose the lower price strategy they are basically saying to their
investors that the company has a large amount of resources and can thereby afford the cost of
a lower price on its shares. This underpricing strategy can also lead to asymmetric
information, which means that different parties (managers, shareholders and external parties)
have different information regarding a corporation and its values. What this means is that for
example external parties, such as Investment bank, in this case could take advantage of their
superior knowledge of the market conditions and underprice the offerings. However if we
look at the long run these kind of Investment banks need to be careful about underprising
companies because they might lose their reputation and their reasonable estimation which
may cause the bank to lose a lot of future deals. In theory the balance between these scenarios
should be a reasonable market value that determines the true value and resources of the
company.
When a company is finally registered on the stock market, the share price fluctuations in the
beginning show at what extent the stock was underpriced. According to the theory of investor
behavior, the investors use all the available information which created the foundation of their
conclusions which influence on their decisions. These findings should be rational and
efficient. But on the other hand some researchers have been analyzing the stock market and
they drew a different conclusion. They state that the investors arent implementing fully the
rational behavior, instead the stock markets from time to time show a more bias behavior
which is more likely to be based upon psychological influences and not rational ones. An
example of this irrational behavior would be a large demand for dot-com stock in the end of
the twentieth century which later resulted in a major back fall.
The human psychological effect plays a very important role on the stock market. Because of
these emotional and irrational acts from time to time great price manipulations could occur
which may drive the prices really high or low, depending on the environment.
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All investors enter the stock market with a single aim to get a higher return. This means that
they want to obtain profits and not lose the money. Because of this people experience
discomfort when the stock markets are plummeting, but this emotion actually diminishes for
as long as there are other investors that are facing the same outcome. This phenomena could
be one of the reasons why there are so many unpredicted stock movements.
On the contrary, there is a different approach to the stock movements which is the theory of
efficient markets. This theory is based on the assumption that investors act upon all relevant
publicly available information. Such information is immediately implemented into the share
price and only when new information is released publicly the price movements occur once
more.
2. Problem & Hypothesis
Society today provides an abundance of information and impressions, influencing the minds
and thoughts of the general public. The increased accessibility of information has made it
easier for any investor to obtain news on corporation and market activities. The increased
media coverage and information accessibility extends the mass medias power and
importance which ought to have a significant effect on society. Corporations are aware of the
possible media effect and seek to gain from its positive outcome. Some researchers claim that
one of the underlying motives for conducting an IPO is the possibility of getting increased
media attention, due to an increased investor interest.
Assuming that the media does in fact influence the potential investors, by drawing attention
to specific companies or industries this is likely to have an impact on the consideration to go
public. A company who wishes to shed light upon itself and its business might see an entry on
the stock exchange as a possible marketing channel, which means IPO is a good alternative.
Companies within the industries such as telecommunications and IT have as their superior
motive to go public which is the increase in publicity and attention. This motive can be
divided into two categories. The first category should be the product effect, which signifies
the possibility to channel news concerning business and product developments. The second
category stock effect keeps the share price at desirable rates.
The media affects the corporation in its quotation process every time when it gives a potential
positive outcome. This means that if companies generally consider increased press to be
positive one might think that press related to IPOs ought to influence the initial development
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of the quotations. However, there are some differences of opinions on whether or not media is
such an influence and if it really is an opinion changing force. Even though researchers seem
to find several experiences and examples of influence there is little agreement on the nature
and extent of the assumed media effects. The remaining doubts may partly be explained by
the difference between general and particular effects. Particular effects are taking place all the
time but there is no possibility to see or predict the total outcome and how much of it that is
attributable to the media. The effects may be several but without any overall pattern or trend.
It is rarely the case that media is the only sufficient cause of an effect and its potential
involvement is therefore extremely difficult to trace. So researchers have claimed that media
contents have no independent influence on the human mind, it is rather so that it takes several
factors united to have an effect. Furthermore, media cannot be characterized as one thing
alone when it in reality is a massive set of messages, images and ideas which mostly originate
from the society itself from the very beginning and is sent back through mass
communication.
The potential media influence is not constant over time and between places. The media power
might vary with the times. Powerful effects were signaled around the two worlds wars when
there was great disturbance in the world, while the 50s and 60 were characterized with more
stability and thereby less powerful media influence. The reason for this might be that people
in times of crises and uncertainty are more dependent on media as a source of information
and guidance.
During the past centuries the medias role has become more and more influential mostly
because of the broad range of media channels and larger exposure affecting the population.
Give the increased media coverage many markets and instructions experience greater
attention and interest from the general public. This ought to include the stock markets and its
popularity as well.
Initial Public Offerings was a common feature during the dot-com era, which had its peak in
2000. After that there has been a decrease in numbers since 2001 due to the dot-com crash.
However around 2006 the trend has changed and the IPO activity became frequent again. The
last financial crisis has change the trend once again, and made companies think twice before
going public.

COMPANIES
In order to understand how the mass media effects on investors, we need to find out what
kind of role does the mass media have in the investors decision making process. There was a
research paper written by Aeron Davis called The role of the mass media in investor
relations which tried to prove that there is a slow decline in the importance of financial news
media in the investment process. But on the other hand, financial news still continue to play a
significant role in trading and can still have a very powerful impact on investment patterns.
This means that companies, investors, analysts still continue to consume the information from
the business media.
2.1 The perception of financial media
The first thing to be discussed would be how the financial media is perceived in the business
world as a mean of communication. On one hand, this financial media looks like it has a
decreasing importance for professional financial analysis. On the other hand, it still is playing
a centralized role in gathering all information about the market, companies and transactions.
The journalists opinions and analysis is steadily declining over recent decades. This means
that the role of the centralized information gathering and story building of the financial media
is slowly losing importance. There are several reasons for this. First, decentralization, selfregulations, implementation of different government acts and strengthening of financial
observers have reduced the scope for constantly creating these price-sensitive information via
financial news, which are accessible to everybody. Second, the electronic information has
revolutionized the methods of communication and the speed of it, which makes the traditional
financial news media redundant. The traditional news cant be compared to the electronic
news because of the speed of accessibility. What this means is that by the time one story has
been developed and analyzed, more up-to-date news might have been transmitted to the
market with immediate change. Also the quantity of information in the traditional methods is
limited, which makes the electronic news more detailed (including raw data). Third, the retail
investors are losing their influential force more and more. This was possible because of the
large pension and investment fund institutions that have grew to dominate the financial
market. In time they have grew even bigger to merge with the global banks and institutions. It
has been estimated that retail holdings on the London Stock Exchange are less than 15%
which is significantly smaller than most other international stock markets. Since the retail
investors are highly dependent on the financial news to invest, their own decline has made the
financial news lose influence consequently.
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In the 90es it has been witness a decrease of accessible information from the companies.
More and more journalists were not invited to presentations of companies. Also they started
ignoring the media and not provide inside information to them. The only information left out
was the official public information about the company and its financial analysis. The
companies considered that private company meetings are more valuable and important than
the public meetings. At the same time, there was still a strong obligation for top managers of
companies to keep contact with the media, in order to maintain the image of the company.
This means that the journalists were in constant communication with the managers, company
analysts and other key players in the investment community. Also private communication
between journalists and other third party players is also to be discussed. While the analysts
get feedback from the institutions, the third party players gather all the arguments and filter
them to find the weak and strong positions in order to the get bright picture. At the same time
the press is communicating with the analysts and goes to the market to ask around the
different opinions on the same story. This way they try to get as much information as possible
from all sides in order to understand both opinions and make a more solid story.
It is noticeable that media exposure of certain top managers of a big company is also playing
an important role for the reputation of the company as a whole. This makes sense because the
reputation of the key representatives of a company usually considered a very important
argument for the investment decisions. This way, managers speak directly about how the
prices are promoted and what are the expectations on the stock market. Although regulations
had decreased the amount of price-sensitive information, they still were being created and
used by some parties. This is one of the ways the companies manage to keep relations with
the investors, because they use the press to manage peoples expectations.
The companies had the ability to manage bad news and crisis situations in order to smooth
the rough reaction of the investors. Everybody is aware of the potential damage negative
news might bring to the company. The importance of effective news could also be important
during a merge or a takeover activity. In these moments investment parties could build
reputations or lose it. Sometimes companies that have a policy no press could be more
damaged in critical situations when they need to find investors immediately. In this scenario
the investors usually ignore the company because they have never heard about it in the first
place.

COMPANIES
2.2 Impact on financial news
The second question would be how the companies manage to transmit the message to the
financial media which should improve their image? Companies that comprise the main
indicators of a Stock Exchange (for example BET, BET-Fi) need to have a day to day method
of communicating with the press. Companies in industries such as Telecommunication, IT,
bioscience should also keep a very close relationship with the made, especially when the
overall trend of the market is to invest. On the other hand, small companies cant really catch
up with the big enterprises in the volume of news mostly because the media arent interested
so much in their evolution because they dont have such a significant role on the society as
the large enterprises. Their opportunities come when they are being involved in the process of
taking over or when they are in the center of a crisis situation. The small companies have
more chance to be mentioned in specialized magazines or regional papers. The journalists
usually choose a company by the news value factor. Obviously the largest companies
immediately attract more attention and thus are considered more media worthy.
Companies that are mentioned a lot in the media need to know how to manage the
information flows in the most positive way. The company needs to carefully analyze every
move it does because it might be misinterpreted or exaggerated by the media. This could
create negative impact and the reputation of a company could be questioned. There is a risk
that the financial press could become a puffer rather than an observer and analyst. They
could also be considered in this case as an extension of a PR department of companies which
would seriously damage their reporting reputation.
There are several reasons this might be the case. The media producers gain their income from
a mixture of advertising and sales. In financial newspapers advertising is the most important
source of income. Consequently, companies that are advertised in the media have a bigger
influence. This means that advertising has funded mostly the financial media. This means that
the media has become more dependent on the companies that have been sponsoring them in
a way. This has directly influenced the sell-side analysts in the media. They have become
more wary when publicly criticizing a company they analyze. What this means is that the
financial media has become a more positive review only and buy this product
propaganda. This kind of media coverage dominates the financial press.
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2.3 The influence of financial media
The third question would be how influential is the financial media on those investors who
buy and sell shares? The answers could be conflicting. On one hand we have researches
(McQuail, 2000 and Ruddock, 2001) who suggest that media would have a limited impact on
the investing audience. Most fund managers that they had interviewed denied that the news
media played a big part in their everyday investment decision-making process.
On the other hand, the role of media could be seen everywhere on the streets of the cities. The
shifts in prices and markets occur because various buyers and sellers need to act
simultaneously in response to information that is shared. A number of qualitative studies have
found significant statistical correlations between publication of price-sensitive information
and price movements. (Lloyd-Davies and Canes, 1978)
For the professional investors financial news doesnt play a major role when they start
evaluating the shares of companies. The printed news have always had a sort of delay
compared to other sources of information, thus professionals didnt rely on it. Because of
their position they had a much greater direct access to the companies financial situation by
directly contacting the CEOs and financial managers. While on the other hand journalists
were welcomed that much in the companies because there was always a risk of
misinterpreting the information and also adding the editors touch to make the news more
attractive. Fund managers have much greater access to research and more time to analyse it
than hard-pressed journalists. In fact not many fund managers claimed that news media was
one of the top information sources. The most important way of obtaining the information was
through company accounts, meeting with managers, analyst reports.
However, media still played a significant part for the private investors. The reason for this is
because most private investors have access only to financial media and maybe couple of
alternative sources of information but only for particular stock. Private investors are highly
dependent on edited comments and share-tipping in financial media because they have little
time or knowledge to make considered decisions. Researchers have drawn a conclusion that
mostly retail investors reacted much more to the media information than professional
investors. (Barber and Odean, 2003) This means that the private investors are media-driven
investors because they dont have the time or the resources to make advanced decisions.
What is interesting is that the professional investors use the financial media to tip the shares
that will be impacted by the retail investors.
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However, there is also much room for speculations about the impact of the financial news on
the professional investors. The financial news and the news wire services are the fund
managers everyday routine. It has been said that 51% of the professional investors said that
newspaper information is the most useful source. 38% said that the same about the news
wire services. (Huth and Maris, 1992)
Under such circumstances the media plays some triggering role in enforcing the fund
managers decision. The media remained just another part of the process. It is a reflective part
of the process that shows which are the todays trend on the market. Most of the time they are
blending in with the overall trends and sometimes they are actually puffing them. The
financial media get their ideas and inspiration from the analysts they talk to, who tell them
what is going on in the city.
There are some other less obvious effects, for example it might not tell people exactly what to
think, but they stimulate them use their own minds to think about the events. This effect is
called reinforcement. Another effect it has is called agenda-setting which gives the media
the power to influence on how the audience interprets the issue. The effects in behavioral
finance are called differently but have the same results. Therefore media not only continues to
trigger investors thinking but it also help confirm ones own thinking.
The media also acts as an indicator of consensus opinion. For example coverage is of the
analysts consensus on some price-sensitive element of a traded company. What media could
also be involved in is the reporting of consensus beliefs on where interest rates are going, the
expectations about inflation or currency changes, the top analysts, or any other economic
indicators which might affect trading decisions more generally.
Because of the media there have been some new terms developed, for example investment
fashions. Industries such as bioscience, IT, media, telecommunications, oil and gas, hedge
funds are all linked to the word fashion. For many participants and market observers such
media influences can be strong contributory factors to dramatic individual price shifts. For
example the big stories in Sunday papers affected the prices on Monday morning.
This kind of media involvement could influence the whole market sectors and sometimes the
whole stock markets. Bubbles and crashes can be the result. For instance, the speculative
bubbles begin with the advent of newspapers. Significant market events generally occur only
if there is similar thinking among large groups of people and the news media are essential
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vehicles for the spread of idea. The media plays a very big role in contributing to the market
bubbles which create extreme trading responses.
The media isnt being used as a source of specific price-sensitive information for professional
investors. However, it can still have a potentially significant effect on the investors. For fund
managers its main pricing impact is at the margins of the market and in its ability to
exaggerate immediate market responses to breaking news. For the retail investor it is a key
source of trading information. For both retail and professional investors its role in puffing
up irrational market expectations can also be quite considerable.
Overall, the financial media has declined in importance as a medium for directly conveying
price-sensitive information and influencing investment decision-making. However, it also
continues to be treated with caution by companies and is keenly followed by the investment
community. It still plays a core part in the financial culture. Journalists exchange ideas with
all parties involved. News triggers and reinforces opinions even when it is not the main
information source for decision-making. At times of company or market crisis it pushes
trading activity to extremes. For all these reasons it continues to be targeted and managed by
companies and interpreted by professional investors.
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3. Case study: Media exposure influence upon four main companies of BVB
Every year companies are spending a huge amount of money on advertising. Not only
because they want to sell their products, but also to support their corporate images. However
some research has shown that people seem to have more faith in articles written by journalists
than in advertising. A question should arise, whether it should be better to increase budgets
for investments in media relations instead of spending all the money on advertisements.
However journalists may prefer negative news and the image of a company is strongly
affected by negative publicity, both in the short and long run. In some cases even bad image
is still considered an image which on the long run could have some positive effects. The press
has become a serious stakeholder due to social pressure, especially in the developing
countries. Companies have to protect their image and therefore have to listen to organizations
like Greenpeace, whether they like it or not.
Although economic forces have gained power in society but research still focuses on political
content more than economic issues. In order to narrow the gap lets analyze a large number of
articles in the biggest Romanian national newspapers. The analysis should answer on the
question: To what extent are differences in media coverage caused by business-related
variables and/or media related variable?
News start with an event, but not every event becomes news. Journalists determine which
events they pick for their news. The role of journalists has become more and more important
due to the information overload. News selection is always subjective, because journalists give
their own interpretation on the characteristics of an event. So the event is as newsworthy as
journalists think it is. But not all journalists are acting in the same way and, therefore, not all
media cover the same issues. A lot of research has been done on news selection. Economical
and political orientated studies generally believe that country and market structure dominates
in the news selection process. As a result journalists will report the common meaning of
different groups in society. The differences in media coverage are not caused by journalists in
the first place, but by the products they make. In this way the culture of a media company
dominates in the process of news selection. As we say so, we expect that media coverage
differs between newspapers. In this respect we mention the discussion about media diversity.
Lots have been written about the role of media in society. Discussions about media diversity
have mostly been focused on political content so far. However, one can discuss whether
political content should still be the only subject in the media diversity discussion. Peoples
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interest in national politics decreases. As a result membership of political parties decreases
whereas at the same time membership of social organizations increases. These organizations
used to be very unprofessional in their media approach, but time has changed. They no longer
address themselves strictly to political parties, but also to business. Directors of big
enterprises probably all know what it is like to be involved in a public dialogue about
environmental issues. Organizations like Greenpeace know exactly how to find the media. In
societies other forces seem to become more and more important also in the political decision
making process. It could be very useful to study media diversity from a more economical
point of view.
From a marketing point of view, publishers pretend to be different from their competitors. A
lot of market research has been done on the characteristics of audience of a particular
medium. The results show that characteristics of readers differ between newspapers, for
example in educational level, interest and income. Despite how media should perform in a
liberal society, newspapers have to survive in the long run, like every other company. So they
will at least have to make a product that their customers like to read. For that reason we
expect that media coverage about enterprises differs between newspapers.
3.1 Additive decision model
The additive decision model is a model in which certain event in combination with a subject
has a certain probability to become news. (Galtung and Ruge, 1965) When I apply this to my
research I can say that:
Branch matters. IF a company has a lot to do with environmental issues, like Petrom,
this company will automatically have more potential to become news at the same
moment environmental issues are part of political discussions. It is expected that big
companies have a bigger chance to become news than small companies, if the same
event occurs. The activities of a company have some newsworthiness in them, both in
volume and judgment as journalists should be very critical in environmental cases.

Event matters. As the events become more newsworthy when it is unexpected,
negative events have high impact on a large group. A sex scandal always attracts more
readers than a positive event of for instance a marriage. In the same line an
unexpected profit warning probably generates more news than a warning in line with
the forecast. Also spectacular differences in share prices might have influence on
news coverage.
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Size of company matters. For example if the CEO of Petrom resigns it will probably
attract more journalists than the resignation of a local director of a small company,
because the impact of the event is higher and of more importance for a bigger
audience.
As we look at the signatures and target groups of the newspapers, we could only assume a
relation between audience and product. Therefore we could formulate some hypotheses.
Newspapers with a well educated audience and high interest in economic topics (Capital and
Ziarul Financiar) will probably pay more attention to economic topics than general
newspapers (Gandul). In other words, we expect the economic newspapers to write more
about companies.
3.2 Bucharest Stock Exchange
In order to analyze the relationship between the media and the companies I have taken the
companies representing the BET index of the Bucharest Stock Exchange. Although 10
companies represent this index, I have analyzed the evolution of 4 biggest companies. I also
consider these companies to be the most liquid and biggest companies which represent in
general the economic performance in Romania.
BVB is the stock exchange office of Romania which has a total capitalization of
87,808,439,391 RON (http://www.bvb.ro/), which would be approximately 21 billion EUR
(based on the exchange rate of 1 June 2010). Although BVB has an old history, dating back
from 1882, but because of the 5 decade halt due to the communist regime and the reopening
in 1994, the Romanian stock exchange office is still developing. BVB will have to catch up
with its western rival stock markets which happens to be a very long process. After
the Romanian Revolution of 1989, the exchange became necessary again. The Bucharest
Stock Exchange was reopened on 21 April 1995 in the building of the National Bank of
Romania. The exchange started trading in November, with only 9 quoted stocks and weekly
trading sessions. In the first year, there was scarcely any activity. Trading started to increase
in 1997, when the number of quoted stocks increased to 76, and volume and prices increased
rapidly in the first half of the year. However, this rapid growth was followed in the second
half of the year by a strong bear market, due to some contagion effect from the East Asian
financial crisis as well as to domestic problems. The newly introduced BET index fell 24% in
the last three months of 1997 and a further 50% in 1998.
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The exchange turned to a bull market in 2001, strong growth in capitalisation, trading volume
and stock prices lasting up to the present. In the next years, stock prices soared, registering
record increases. In 2002, BET index increased by 117.5% and, according to Financial Times,
BVB has grown fastest among world exchanges that year.
New instruments were introduced by a management of Vienna Stock Exchange in 2001 with
a new listing structure and listing of the first municipal bonds. However, Bond trading has
been very thin until now, partly because of repeated postponing of the listing of government
bonds.
On 14 February 2008, the first foreign company is listed: Erste Bank der oesterreichischen
Sparkassen AG (Erste Bank) having the symbol EBS.
BET is the first index developed by BVB and at the same time is the reference index for the
BVB market. BET is a free float weighted capitalization index of the most liquid 10
companies listed on the BVB regulated market. The index methodology allows BET to be a
good underlying for derivatives and structured products.
Companies that represent BET index are:
OMV Petrom
Banca Transilvania
BRD Groupe Societe Generale
S.N.T.G.N. Transgaz
C.N.T.E.E. Transelectrica
Biofarm
Condmag
S.S.I.F. Broker
Dafora
Azomures
3.3 The four companies

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I have analyzed OMV Petrom, Banca Transilvania, BRD Groupe Societe Generale and
Transgaz. All four companies together represent 76.31% of the total weight of the BET index.
This means that the more than of the BET indexs weight is accumulated by these four
major companies. Therefore I could say that these four companies play the biggest role for
the BET index, and also for the entire Stock Market.
I would like to find out the correlation between the performance of a company and the mass
media. The research should answer the question: In what way do Romanian newspapers
report about big Romanian enterprises and to what extent are differences in the media
coverage caused by business-related variables and/or media related variable?
I have selected four companies that represent the biggest part of the Romanian stock market.
OMV Petrom is a Romanian oil company that extracts crude petroleum and manufactures it.
Petrom is a privatized company by the Romania state who sold it to Austrian oil company
OMV, who control 51% of the company while the Romanian state has 40%. Even so, the
company has tight relations with the Romanian government firstly by being the biggest
contributor to the state budget (from the tax perspective), secondly it receives reasonable aid
from the government in different activities.
Banca Transilvania is a Romanian bank corporation which is in the domain of financing and
insurance. The company is mostly backed up with Romania capital divided by Legal persons
and Physical persons (approximately 75%). The remaining shareholding structure is split by
Bank of Cyprus (9.7%) and European Bank of Reconstruction and Development (15%).
BRD Groupe Societe Generale is a Romanian bank which is a part of the French financial
group Societe Generale which holds approximately 59% of the Romanian company. The
remaining percentage is held by various shareholders, some of them are S.I.F. Moldova and
S.I.F. Transilvania who together hold less than 10% of the company shares.
Transgaz is a Romanian state-owned company which is the main transporter of natural gas in
Romania. They are the technical operator of the natural gas transmission system in Romania.
The main shareholder is the Ministry of Economy and Finance of Romania with 73% of
shares.
3.4 Method and data collection

18

COMPANIES
In my research I expect to see also a relation between the size of a company and the media
coverage. In this context I looked at two variables: number of employees and stock value. In
this research I was also interested in the economic events. As a result I looked at the
economic events of a company: profit and share prices.
During our research all companies published their company results. As the meaning of an
absolute value of profit of a company can hardly be compared to other companies, I took the
value of the proportion of the increase in profit. The definition of change in profit of a
company in our research looks so:
Comp an y' s profit period t ( )compan y ' s profit period t1 ( )
100
Compan y ' s profit period t1 ( )
I used the same method for measuring the change in share price:
'
Compan y s share price period x1100
Compan y ' s share price period xcompan y ' s share price period x1
In order to determine one period in time, I divided the total period of data collection into 6
equal time intervals. Each time interval was equal to one month in the second semester of
year 2009, thus all data collected was from the period July December 2009.
Data about profits, stock value and number of employees were taken from the Internet and
annual reports of the companies. The share prices were taken from the BVB official website.
The articles about the four main companies in Romania were collected from two business
newspapers (Ziarul Financiar, Capital) and from one national newspaper (Gandul). The
article was selected if it had the name of the company was mentioned in the text. In this way I
have collected more than 1800 articles. Sometimes one article contained more than one
company, for example when there was a credit comparison of banks in Romania. In that case
I coded that articles two times: the first time for one company and the second time for the
other company. These cases were very rare.
19

COMPANIES
In our research I defined media coverage in volume and judgment. I looked at the volume of
one single article by calculating an importance indicator. Importance indicator in our case is
how important does a newspaper think an event of a company is.
There exist many indicators for the importance indicator, such as length of article, position in
newspaper, size of heading, position on page, illustration or not. For practical reasons I only
included length of the article and position of the article.
Length of the article is expressed in the total number of paragraphs of an article.
The position of the article, with a range of 1 3, indicates the importance a journalist gives to
a specific article. The highest score (3) was given to the articles that have in their title the
name of the company. The second score (2) was given to the articles that have the name of
the company in their first bold paragraph, where the general info of an upcoming article was
written. The articles with lowest score (1) were articles in which the companys name was
mentioned only in the main body of the article. If the name of the company was mentioned
several times in different bodies, the highest ranking was chosen.
Therefore, the importance indicator was calculated as follows:
Importanceindicator=number of paragraphsposition of article
To define the volume I simply took the average score of the importance indicator and
multiplied with the number of articles analyzed in that period:
Volume=number of articlesaverage importanceindicator
In order to measure the way in which the newspapers judge about companies, one should find
a subjective measurement. As long as content analyses exist people have measured the
volume, which is normally quite objective. Measuring judgment however is more difficult
and has been measured starting from the 50ies of the last century. Judgment can be divided
into three categories:
20

COMPANIES
The event itseft can be negative event (a loss in profit) or positive (more profit than
expected).
The way in which the journalist evaluates and reports about the even (in a negative,
neutral or positive way)

The way in which a third party is quoted in the article
The first category is called implicit evaluation; the second and third categories are called
explicit evaluations.
Implicit evaluations are necessary when we want to know whether there is an effect of media
coverage on the public or not. Each sentence in which a company was mentioned I looked
whether this sentence was negative, positive or neutral. Therefore, I drew a conclusion that
judgment score is calculates so:
Judgment score=total of positive sentencestotal of negative sentences

total number of coded sentences including neutral
In this way I could give every article a score for judgment.
3.5 The hypotheses

Using all these tools I wanted to test couple of hypotheses in this research:
H1. The more employees a company has, the more volume in media coverage that
company gets
H2. The higher the stock value of a company, the more volume in media coverage that
company gets
H3. The more a companys profits differs from 0, the more volume in media coverage
that company gets
H4. Business newspapers will have higher volume in media coverage of enterprises
than general newspapers
H5. Companies in oil and chemistry branch will have higher volume in newspapers
than companies in the financial sector
21

COMPANIES
H6. The more positive change in a companys profit, the more positively the media
write about that company
H7. The more positive change in a companys share price, the more positive their
media coverage is
H8. Financial companies will be covered more positively in newspapers than
companies with a more sensitive product to the environment
H6 and H8 are based on the theory that environmental issues have more impact on society
and will therefore have a higher chance becoming news than other activities.
Table 1 gives us just an impression of the diversity among the media coverage of the
companies. One can read the average judgment score, the average importance indicator, the
total number of articles and total volume of each company. For example OMV Petrom has an
average judgment score of 0.072502 and an average importance indicator of 8.797714 over
736 articles. The total volume in news of OMV Petrom is therefore 736 multiplied by
8.797714 is approximately 6475, which is shown in the column on the right.
Generally spoken, newspapers judgment seems to be neutral (0.035354) but the range range
between the lowest and the highest score is rather high (OMV Petrom 0.0725; BRD 0.0134).
I could say the same about the of the range of importance indicator ( Transgaz 10.029; BRD
8.246). Whereas OMV Petrom and BRD show high numbers of articles, we see that Transgaz
was mentioned only 182 times during the period of 6 months. Although Transgaz was
mentioned only 182 times it has the biggest average importance indicator.
Table 1 (The results)
Company
Average
Average
Total number
Total Volume
judgment score
importance
of articles
OMV Petrom
Banca
0.072502
0.035706
indicator
8.797714
8.64005
736
440
6475
3801
Transilvania
Transgaz
BRD
0.019777
0.01343
10.02927
8.245813
182
509
1825
4197
Total
0.035354
8.9282
1867
16298
22

COMPANIES
H1 H5 deal with the expected effect on volume. In a linear regression I tested the
hypotheses.
H1. The Hypothesis 1 is testing if there is a direct correlation between the number of
employees and volume of the company in newspapers. After running the regression
analysis (See Annex 1) Ive drawn a conclusion that for the sample data 76% (R
square) of volume amount is explained by the number of employees the company has.
We cant really say about the population results accurately because the p-value
(0.172) is greater than alpha (set previously as 0.05). Although the volume of in
media coverage might be seen higher in companies such as OMV Petrom (30398
employees) but we cant really say the same for the entire population using the 95%
probability interval, because the significance F is 0.127 which is greater than accepted
0.05. For the conclusion, for the sample the number of employees might have a
significant role on the media coverage, but we cant say the same thing for the overall
population with the 95% probability interval.
H2. The second hypothesis (Annex 2) should test if the stock value of a company
affects the volume of media coverage. I have tested this hypothesis and found out that
there is relationship between the two variables. It seems that the newspapers write
more about a company if the stock value is higher in a certain moment in time. 53%
of the volume is explained with this stock value variable and with a significance F
close to 0 (below the accepted 5%) we could draw the same conclusion for the entire
population.
H3. The third hypothesis (Annex 3) is testing the impact if a companys profit differs
from 0 it should have more media coverage. The changes in profit didnt show a
significant effect on the importance indicator. This means that even if the profits
change drastically the newspapers might not write a big story about this case, but just
mention the companys performance in general in a couple of paragraphs. But if we
look at the volume the profit difference makes, we could say that there is a significant
role. This is explained with the number of articles mentioned in the newspapers when
the difference in profit is different from 0. We can say that with a confidence level of
95% the more a companys profit differs from 0 the more volume the company gets in
the media.
H4. Hypothesis four deals with the importance of business newspapers. There is a
very strong relationship between the volume covered by the media and the type of the
newspaper. We could say that 97% (R square) of the volume is explained by the
23

COMPANIES
newspaper that writes about the company. With a significance F close to 0, we could
say that this is true also for the entire population, which leads us to a conclusion that
business newspapers write more often and bigger articles about companies than
general newspapers. This makes perfect sense, because these newspapers are
specialized in bringing up-to-date news about the companys evolution on the market.
H5. Hypothesis five that tests the domain a company is isnt true. It doesnt mean that
companies in oil and chemistry industries will have higher volume than banks.
Although in our case OMV Petrom has the highest volume of all, but if we add BT
and BRD together they will have more volume. I believe that there is no significant
role of the domain the company works in, but as long this company is one of the
biggest in the country it will get a lot of attention from the media.
The H6 H8 hypotheses deal with the effect on judgment score. None of the three judgment
hypotheses is true. It seems that the positive change in profit and positive change in share
price dont automatically mean a more positive media stories. The reason for this might also
be the profit distribution over the period of three months. Since the companies announce their
profits quarterly I have divided each profit to 3 to spread this profit per each month. This way
I cant truly say if the profit difference affects the judgment score, since each company has
only 2 profit values for 6 months, while judgment score was updated each month. It would be
reasonable to say that for profit influence the data might be pretty vague or insignificant.
Referring to the share price change, I could say that that there was no significant effect on the
way in which journalist write about a company. Companies that see their share prices
increase very fast do not get more positive media attention than companies with lower
increases or even decreases, thus H7 is not true also. H8 is also not true because if we look at
the overall judgment score we can see that OMR Petrom, which is an oil manufacturing
company, has the highest judgment score from all. This means that the industry the company
works in doesnt reflect the judgment score. Looking at all three judgment scores, we could
say that they are pretty unpredictable and that profit, share price and industry dont necessary
mean a predictable judgment score from the journalists.
24

COMPANIES
Conclusions
Companies differ from each other in the way they are covered by newspapers. The higher the
stock value of a company, the bigger the stories and the amount of articles are written about
these companies in the newspaper. Also if a company has a bigger change in profit this
would increase the volume of the media coverage. The media likes drastic changes in profit;
it might be a significant increase or even a dramatic decrease in profit, this will increase the
total volume of the company mentioned. The business newspapers write more articles about
the companies, which make perfect sense, while the general newspaper usually write general
articles with no deep coverage. Companys performance is seen much more in business news
than in general ones.
On the other hand, I have seen that the number of employees doesnt necessary mean an
increase of volume. The companys industry also doesnt necessary mean more media
coverage. It seems that there is a big influence on the importance of the company. What I
mean is for instance in Romania the biggest companies are oil manufacturers and banks. This
is the main reason why two completely different industries (manufacturing and banking) are
covered more than others. Regarding the judgment score hypotheses none of them proved to
have significant impact. It seems that the increase in profit or share doesnt necessary mean a
larger increase in judgment. Another important conclusion is that industry doesnt necessary
mean a predicted judgment score for the company (which means that banks should be
evaluated more positive than oil manufacturers).
These conclusions have several differences compared, for instance, to the Dutch market. The
Dutch market is a developed market which has a richer financial history than Romanian stock
exchange market, which roughly works for 15years (not taking into consideration the preWWII period). Because of this period, the Romanian stock market is still considered
developing and there are a lot of needed improvements on the market, in order to catch up
with the Western rivals. The differences (comparing the hypotheses) are for example in the
impact of total employees. On the Dutch market companies with a bigger number of
employees are mentioned more often in the newspapers. The same conclusion can be drawn
regarding the judgment score of an industry. It seems that on the Dutch market manufacturing
industries (for example oil and gas, food industries etc) are more criticized than publishing
companies and financial institutions. It seems that the banks dont have the same impact on
society in case of bad decisions or product failures. On the Romanian market it is a bit
25

COMPANIES
different, because the banks, compared to other industries, are one of the biggest companies
in Romania; therefore they have a bigger impact on the society, mostly because of the jobs
offered.
At the moment, all companies should seriously consider their behavior towards the press. As
the press seems to be less critical than people might think and does not differ that much in
content, this kind of publicity could be a very useful tool for image building. Companies can
be far more active in presenting their successes, as they know that success is the best
guarantee for positive publicity and greater attention. And the profit of a positive press will
probably be far more than the loss of money on advertising, unless the media wake up and try
to be as different as they say they are.
26

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References
Marion A. van Lunenburg A content newspaper analysis of Dutch industry, 2002
Frida Schulz, Lina Schollin The media coverage and its influence on the share price in an
Initial Public Offering. 2006
Aeron Davis The role of the mass media in investor relations, 2002
Yungwook Kim, Jihye Kim Evaluating media exposure: an application of advertising
methods to publicity measurement, 1999
Lily Fang, Joel Peress Media coverage and the cross-section of stock returns, 2008
Niamh M. Brennan Impression management, 2008
John C. Dumay, Jiayang Lu Disclosing improvement in human capital: comparing results
to the rhetoric, 2009
Paul Whysall Wal-Marts takeover of Asda: what the papers said, 2001
http://www.bvb.ro/ - Bucharest stock exchange office
http://www.zf.ro/ - Ziarul Financiar
http://www.capital.ro/ - Capital
http://www.gandul.info/ - Gandul
27

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Appendix
Annex 1
Hypothesis 1
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.873391
R Square
0.762811
Adjusted R
Square
0.644216
Standard
Error
1356.67
Observation
s
4
ANOVA
df
Regression
Residual
Total
SS
11838608.
89
3681105.8
67
15519714.
76
MS
118386
09
184055
3
F
6.4320
94
Coefficie
nts
Standard
Error
Intercept
2258.437
1081.9977
25
2.0872
85
0.1721
27
X Variable 1
0.167408
0.0660083
45
2.5361
57
0.1266
09
t Stat
P-value
Significan
ce F
0.1266094
89
Lower
95%
2397.0232
99
0.1166034
43
Upper
95%
Lower
95.0%
Upper
95.0%
6913.8
98
2397.02
6913.89
8
0.4514
19
-0.1166
0.45141
9
28

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Annex 2
Hypothesis 2
SUMMARY OUTPUT
0.72914
Multiple R
5
0.53165
R Square
3
Adjusted R
0.51036
Square
4
Standard
27.1533
Error
7
Observatio
ns
24
ANOVA
df
Residual
22
Total
23
SS
18413.2
4
16220.7
2
34633.9
6
Intercept
Coefficie
nts
95.7389
1
Standar
d Error
6.60445
2
X Variable
1
-0.41738
0.08352
Regression
Significa
nce F
MS
18413.
24
737.30
55
F
24.973
69
t Stat
14.496
12
4.9973
7
P-value
9.75E13
82.04212
5.3E05
-0.59059
5.3E-05
Lower
95%
Upper
95%
109.43
57
0.2441
7
Lower
95.0%
82.042
12
0.5905
9
Upper
95.0%
109.43
57
0.2441
7
29

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Annex 3
Hypothesis 3
SUMMARY OUTPUT
0.47516
Multiple R
1
0.22577
R Square
8
Adjusted R
0.19058
Square
6
Standard
34.9118
Error
2
Observatio
ns
24
ANOVA
df
Regression
Residual
22
Total
23
Coefficie
nts
SS
7819.58
4
26814.3
7
34633.9
6
Intercept
83.1745
Standar
d Error
7.43647
2
X Variable
1
-0.39107
0.15439
5
Significa
nce F
MS
7819.5
84
1218.8
35
F
6.4156
2
t Stat
11.184
67
2.5329
1
P-value
1.52E10
67.7522
0.0189
52
-0.71127
0.018952
Lower
95%
Upper
95%
98.59
68
0.070
87
Lower
95.0%
67.752
2
0.7112
7
Upper
95.0%
98.596
8
0.0708
7
30

COMPANIES
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