DO ADS INFLUENCE EDITORS? ADVERTISING AND BIAS IN THE FINANCIAL MEDIA Jonathan Reuter and Eric Zitzewitz erly Journal of Economics(forthcoming) Current Draft: August 2005 abstract The independence of editorial content from advertisers' influence is a cornerstone of journalistic ethics We test whether this independence is observed in practice. We find that mutual fund recommendations are correlated with past advertising in three personal finance publications but not in two national news- papers. Our tests control for numerous fund characteristics, total advertising expenditures, and past mentions. While positive mentions significantly increase fund inflows, they do not successfully predict returns. Future returns are similar for the funds we predict would have been mentioned in the absence f bias, suggesting that the cost of advertising bias to readers is small. The authors would like to thank Susan Athey, George Baker, Brad Barber, David Beim, Jeremy Bulow, John Chalmers Diane Del Guercio, Alexander Dyck, Ray Fisman, Kenneth Fuller, Ronald Gilson, Shane Greenstein, Ro Gutierrez, Larry Harris Mikkelson. Theodore David Musto. Megan Partch. Avri d.john rea Nancy Rose, Greg Spears, Joel Waldfogel, David Yoffie, Steve Zelda nonymous referees, Edward Glaeser(the editor seminar participants at the Columbia Graduate School of Business d Business school. the U.s. Securities and E. Commission, Stanford, University of California at Berkeley, University of Oregon, the second annual International Inc Organization Conference, the 2004 Wharton Conference on Household Financial Decision-Making and Portfolio Choice, the 2004 NBER Industrial Organization Summer Institute for helpful suggestions and comments. Caroline Baylon provie excellent research assistance. Any remaining errors are ourDO ADS INFLUENCE EDITORS? ADVERTISING AND BIAS IN THE FINANCIAL MEDIA† Jonathan Reuter and Eric Zitzewitz Quarterly Journal of Economics (forthcoming) Current Draft: August 2005 Abstract The independence of editorial content from advertisers’ influence is a cornerstone of journalistic ethics. We test whether this independence is observed in practice. We find that mutual fund recommendations are correlated with past advertising in three personal finance publications but not in two national news￾papers. Our tests control for numerous fund characteristics, total advertising expenditures, and past mentions. While positive mentions significantly increase fund inflows, they do not successfully predict returns. Future returns are similar for the funds we predict would have been mentioned in the absence of bias, suggesting that the cost of advertising bias to readers is small. †The authors would like to thank Susan Athey, George Baker, Brad Barber, David Beim, Jeremy Bulow, John Chalmers, Diane Del Guercio, Alexander Dyck, Ray Fisman, Kenneth Fuller, Ronald Gilson, Shane Greenstein, Ro Gutierrez, Larry Harris, Chris Mayer, Cynthia Montgomery, Wayne Mikkelson, Theodore Miller, David Musto, Megan Partch, Avri Ravid, John Rea, Nancy Rose, Greg Spears, Joel Waldfogel, David Yoffie, Steve Zeldes, four anonymous referees, Edward Glaeser (the editor), and seminar participants at the Columbia Graduate School of Business, Harvard Business School, the U.S. Securities and Exchange Commission, Stanford, University of California at Berkeley, University of Oregon, the second annual International Industrial Organization Conference, the 2004 Wharton Conference on Household Financial Decision-Making and Portfolio Choice, and the 2004 NBER Industrial Organization Summer Institute for helpful suggestions and comments. Caroline Baylon provided excellent research assistance. Any remaining errors are our own