If You Tweet, They Will Follow: CEO Tweets, Social Capital, and Investor Judgments

• In Event: Social Media

Abstract

The US Securities and Exchange Commission (SEC) recently approved firms’ use of social media to disclose important information, provided investors are informed about which outlets will be used for disclosure. Although the SEC contends that the use of social media will improve the overall information environment, findings from communications and management research suggests that the social nature of this medium will positively influence investors’ perceptions of the CEO and the firm. Accordingly, this study develops a theoretical model based on social capital theory to investigate whether and how CEO tweets impact investor judgments. Using an experiment with nonprofessional investor participants, we predict and find that CEO tweets lead investors to feel as though they have developed a personal relationship with the CEO thereby increasing investors’ perceived social capital with the CEO and positively influencing their judgments of the CEO, reflected in a CEO compensation recommendation judgment. Our results have important implications for standard setters, investors, and firms regarding the consequences of corporate social media use.

Authors

• Andrea Seaton Kelton, Wake Forest University

• Robin R. Pennington, North Carolina State University