Is Firms’ Social Media Engagement Informative about Firm Performance?

• In Event: Financial Accounting and Auditing

Abstract

In this paper, I examine whether the intensity of followers’ engagement with firms on social media is incrementally informative about firms’ performance measured as sales growth, unexpected sales growth, and stock returns. I define engagement as the collective response – likes, retweets, and replies – of followers to firms’ tweets. I use approximately 289 million engagement actions (likes, retweets, and replies) of firms’ followers collected from the Primary Twitter sites of 2,195 publicly-traded US firms between 2006 and 2017 for the empirical analysis. Results suggest that for tweeting firms, relative to firms without Twitter presence, quarterly changes in engagement volume incrementally explain sales growth and unexpected sales growth. I also find that monthly changes in engagement volume represent value-relevant information that gets impounded into stock prices contemporaneously. Furthermore, followers’ engagement volume is a forward-looking indicator of stock prices: monthly changes in engagement volume vary directly with the following month’s stock returns.

Author

• Atul Singh, Ball State University