Communities lose the most when local newspapers shut down. Politicians take liberties as there is no one to make them accountable for their actions. They prey on the ignorance of the general public. The city not only gets financially poorer but culturally as well. Cities get saddled with higher borrowing expenses. Bond costs can go up a staggering 11 basis points after local newspapers shutter its doors. It is clear that the presence of civic watchdogs makes a significant difference to bottom lines.
Consolidation and financial torpedo
Paul Gao of the University of Notre Dame was interested in the subject. The associate professor teaching finance with another researcher concentrated on two aspects- the consolidation of news media in the national level and the closure of news written by smaller newspaper groups operating at a city level. Their subsequent survey covered a total of about 1,596 newspapers serving about 1,266 counties over the period. All were American locations. They found that 296 newspapers closed down either due to losses or were bought by a bigger rival. Mergers were also commonplace. They found that municipal bond expenses and revenue bonds costs went up in those cities where local newspapers went extinct. This was the direct result of losing much required investigative services the newspapers provided.
Cities get financially hit the most. Local citizens get to bear the burden. The offering yield of the municipal bond is the interest rate which municipalities pay when they borrow money from the bond market. A city must pay more in its semi-annual payments to the bondholders (known as coupons) when it is burdened with high offering yields. Conversely, the secondary yields represent bond interest rates when they get traded in the market. It is a good indicator of the financial health of the city.
The increase in rates is even more marked for revenue bonds. They are found to be generally higher in states suffering from poor governance and low Internet usage. Researchers long had the inkling that higher bond expenses have a direct correlation with the decline of local investigative reporting. These are not related to crumbling economic conditions. A bellwether of bad things to come, researchers found, is the arrival of Craigslist. City residents then moved from paid services to free classified listings online. It is found that newspaper closures went up by 9.6 percent with the arrival of this free service.