Corporate Social Media: How Two-Way Disclosure Channels Influence Investors

• In Event: Social Media

Abstract

I examine how a firm’s engagement with individuals on social media affects the firm’s reputation and its attractiveness as an investment. I focus on a case in which a Twitter user highlights and criticizes an application of managerial judgment in a firm’s financial disclosure and firm management chooses whether and how to respond. I collect data using two experiments, in which I vary the number of times the criticism has been retweeted and the firm’s response strategy. Results of my experiments suggest the following. First, a third-party criticism, even unsupported, can still cause investors to question their positive feelings about a firm (relative to never viewing the criticism). Second, the number of retweets a criticism receives appears to be an important determinant of how much investors update their priors concerning a firm. Third, firm managers can have some success managing investors’ perceptions by using Twitter to either address the criticism directly or redirect attention to more positive highlights from the firm disclosure. Overall, my study furthers our understanding of how a firm can effectively manage investors’ perceptions by participating in, rather than abstaining from, conversations about the firm on social media.

Author

• Nicole Cade, University of Washington-Seattle