What Does Customer Engagement on Social Media Convey about Firm Performance?

• In Event: Research in Financial Accounting II

Abstract

In this paper, I explore whether the aggregate information in the volume of a firm’s tweets and the followers’ response predicts the firm’s quarterly earnings, earnings surprise, sales growth, unexpected sales growth, and market value. Additionally, I examine the relationship between the tweet behavior of a firm and its market value. My data comprises of 178,236 firm-quarters (46,449 Tweet firm-quarters) and approximately 17.50 million firm-initiated tweets collected from the primary Twitter sites of 2,229 public US firms between 2006 and 2017. I find that aggregate information in the volume of a firm’s tweets and the volume of engagement of followers during a quarter incrementally explains the actual quarterly earnings of the firm and this association is strongly positive. I further find that both level as well as change in the volume of tweets (engagement) provides additional information for predicting the firm’s sales growth. The results also suggest that analysts may be using this additional information to make more accurate earnings and sales forecast, which reduces the Tweet firm’s unexpected earnings and unexpected sales growth. My study also indicates that followers’ engagement is more informative than the firm’s tweet volume. The findings further suggest that market value of Tweet firm has a positive association with its volume of tweets (engagement) as well as a change in the volume of engagement. The results are robust to using alternative definitions of tweet volume (engagement).

Author

• Atul Singh, George Washington University