Investor Reaction to $Firm or #CEO Use of Social Media for Negative Disclosures

• In Event: Social Media

Abstract

We examine whether CEOs are able to influence how investors react to a negative earnings surprise by directly communicating with them via social media. Results show that investors exhibit higher levels of trust and are more willing to invest in a firm when the firm’s CEO communicates the negative news through a Twitter account than when the news comes from the CEO via a website or from the firm’s Investor Relations website or Twitter account. Further analysis reveals that direct communications from the CEO through a Twitter account help build more trust in the CEO, including a more enduring form of trust, which leads investors to discount the negative news as a one-time event. Our results have implications for the many firms and their executives who are considering the costs and benefits of directly communicating with investors via social media.

Authors

• Wynter Brooke Elliott, University of Illinois-Urbana-Champaign

• Stephanie Grant, University of Illinois-Urbana-Champaign

• Frank Hodge, University of Washington-Seattle