AAA Spark Meeting of the Regions

Social Media and Classification Shifting

• In Event: Corporate Governance and Media

Abstract

We study the role of social media in classification shifting. Specifically, we examine the effect of stock message board negative sentiment on classification shifting. We find that social media criticisms are positively associated with classification shifting, and the effect is more pronounced for firms with high dissemination and more clicks of posts, for non-state-owned firms, Growth Enterprise Market firms, young firms, and for firms with high management ownership, with just meet or beat zero earnings and low social responsibility. We further find that when accrual-based earnings management is constrained, firms tend to engage in classification shifting to alleviate the market pressure from social media. Our study contributes to the earnings management literature by providing novel evidence that sheds light on the market pressure of social media in shaping earnings management strategies.

Authors

• Peng Wu, Southeast University

• Hongyu Liu, Southeast University

• Liya Hou, St. Cloud State University