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No news is good news

Depending on whether or not you’re a pessimist or an optimist, either the aphorism “no news is good news” holds true or the maxim “all publicity is good publicity” is more accurate. But, could whether news is good or bad be self-perpetuating, particularly in terms of business and financial news?

UK researchers have analysed the impact of the financial crisis that began in 2008 by looking at news output in terms of company chair financial statements for the period 2006 to 2010 for financial companies. The regression analysis by Khaled Hussainey of the Plymouth Business School, at the University of Plymouth and colleagues suggests that overall UK financial companies disclose more good news information than bad news information. However, they also found that the crisis affected the financial reporting of good news and bad news. “After controlling for other firm characteristics and corporate governance mechanisms, UK financial companies disclose more bad news information during and after the crisis period, while they disclose less good news during these periods.”

Economists have predicted that the financial crisis of 2008 may well have a more detrimental impact in the long term than the so-called Great Depression of the 1930s. The crisis began in the USA when bad debts sold and then used as collateral for yet more borrowing ultimately led to a massive collapse of value across the global economy. While the notion that one should “neither a borrower nor a lender be” is perhaps unrealistic in the modern world, and probably always was, the crisis led to the failure of countless companies from small enterprises to massive banking conglomerates and many others. Governments around the world are still clamouring to prove that they now have a grip on growth but in the wake of multi-billion bank bailouts they are still foisting enormous austerity measures on the public through swingeing cuts to public services and more. Indeed, some regions are essentially bankrupt and however you look at it deficits that reach into the trillions suggest that the concept of anything having a real economic value has been lost entirely in some sense.

The problem that the Plymouth team has uncovered is that the 2008 “crisis” can be used and is being used as an external scapegoat for internal problems in many companies. The issue probably extends to governments. It is interesting to watch those in power being flown by private jet and chauffeured in luxurious cars from meeting to meeting will a well-stocked mini bar and buffet in every hotel room. Meanwhile, poverty was never made history and millions, if not billions, of people continue to suffer disease, lack of food, poor living conditions. What was that about pessimists and optimists? Your glass is it half full or half empty?

Research Blogging IconSaid Ressas, M. and Hussainey, K. (2014) ‘Does financial crisis affect financial reporting of good news and bad news?’, Int. J. Accounting, Auditing and Performance Evaluation, Vol. 10, No. 4, pp.410–429.

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