The Association between Firms’ Use of Social Media and Market Reactions to Earnings Announcements – Evidence from Twitter

• In Event: Social Media

Abstract

This study examines the association between firms’ use of social media and stock market reactions to earnings announcements in volume and price. We focus our study on Twitter and investigate (1) whether more investors, especially small or retail investors, reach the information through Twitter and initiate more trades, and (2) whether the way firms use Twitter, such as the tone used in tweets, affect the short-term stock price reaction to earnings announcements. Our main empirical results show that the abnormal trading volume of small trades around earnings announcement increases with the positive tweets posted by firms, but that of large trades remains unchanged. Also, the price reaction to positive unexpected earnings is exacerbated when the firm posts positive earnings announcement-related tweets. In additional tests, we find firm-initiated tweets broadcasted on the day before earnings announcement may serve as a reminder and increase the event-day stock price reaction to unexpected earnings.

Authors

• Ju-Chun Yen, National Central University

• Shu-Hsing Li, National Taiwan University

• Kuo-Tay Chen, National Taiwan University