Banking on Bias: Media Coverage and Financial Bailouts

ABSTRACT This paper studies the optimal bailout coverage of a media firm. Driven by the incentive to lower its expected borrowing costs, the media firm's coverage tends to favor the banking sector. However, this pro‐bank bias results in the same ex ante expected borrowing cost as truthful coverage. While bias reduces borrowing costs when a bailout provides no public benefit, it also leads to higher borrowing costs when a bailout serves the public interest. Ultimately, pro‐bank media bias always harms the taxpayer's expected welfare. Moreover, greater financial fragility in the media sector increases the likelihood of bank failures that taxpayers would ideally seek to prevent.