Social Media Information and Analyst Forecasts.

• In Event: Strategic Disclosures 1

Abstract

In the past decade, social networking has changed the landscape of information dissemination. The rapid diffusion of social media services such as Facebook and Twitter is unprecedented and offers immense possibilities for corporations to communicate with, and engage core stakeholders in, various business decisions. In this study, we investigate whether social media plays any role as a source of information for financial analysts. We focus particularly on the information content of the S&P 500 firms’ official Facebook pages. We define the information content on a Facebook page as the total number of posts by the corporations and the comments, likes and shares (CLS) by Facebook users. By using the data of 4,929 quarterly forecasts from 2008 to 2012, we find that analyst forecast errors decrease significantly with the amount of information content on Facebook. This finding is robust, using the information content on Facebook pages for various time windows before the forecast dates. We also disaggregate the Facebook information into posts and CLS, and, interestingly, find that the information that helps analysts with forecasting is generated from the CLS provided by the public and stakeholders, not from the posts provided by the corporations. The findings of this study confirms the increasing role of social media as a means of information dissemination, and the evidence of the efficient use of that information by sophisticated users such as financial analysts.

Authors

• Mahfuja Malik, Sacred Heart University

• Rajib Hasan, University of Houston-Clear Lake

• Abu Amin, Central Michigan University