Press freedom and operational losses: The monitoring role of the media

We investigate the monitoring role of the media, its detection and deterrence effects in corporate operational losses. Relying on our theoretical model, we analyze 8,144 loss events from 132 countries between 2008 and 2019. Controlling for factors related to governance, living standards, business cycles, and firm size, we find that press freedom has a significant positive effect both on the frequency and severity of the observed operational losses. An improvement of one standard deviation in press freedom yields around 43% more and 71% higher public losses. Our estimations on hidden losses indicate that the worldwide detection rate of operational losses might be smaller than 53% and 13% in terms of number and value, respectively. Furthermore, in countries with a tightly controlled media, hidden operational risks might be tremendous. We suggest using public databases more carefully, adjusting operational risk models for the reporting bias, and promoting press freedom to improve corporate governance structures.