Investors’ Attention and Social Media: Evidence from Small and Medium Entities

• In Event: Disclosure Environment

Abstract

I investigate the relevance and use of corporate social media, i.e., Twitter, in small and medium entities (SMEs) during the period around earnings announcements (EA). Given that investors’ attention is limited, social media may increase the saliency of a firm during EA. Social media is particularly relevant to SMEs as they operate in an uncertain environment and are subject to limited media coverage. I show that firms sending more tweets containing financial information before EA exhibit higher investors’ attention at EA. I then document that SMEs communicate strategically on social media. Firms tend to send fewer tweets before disclosing bad news at EA. Cross-sectional analyses indicate that Twitter activity has a large effect on investors’ attention and may be used strategically by SMEs with low media coverage and with less analyst following. This paper contributes to the discussion on the use of new channels of communication by showing their relevance to SMEs and the uses to which they may be put. It has also implications with regards to the need for additional information on firms of smaller size.

Authors

• Alessandro Ghio, Monash University

• Romain Boulland, Essec Business School

• Andrei Filip, ESSEC Business School

• Luc Paugam, HEC Paris