The Feedback Effect of Social Media on Corporate Investment: Evidence from Twitter Presence and Engagement

• In Event: Financial Accounting and Reporting: Earnings

Abstract

Utilizing 352 million posts for 2,062 firms on Twitter, we examine whether social media presence and engagement have a feedback effect on corporate investment. We find that firms invest more efficiently after the initiation of Twitter presence. Furthermore, the more engaged the followers, the more efficient the investment decision. The effects are robust to the inclusion of information incorporated in stock prices and other information sources. As an identification strategy, we explore an exogenous shock to managerial attention to Twitter and find that the shock amplifies the difference in deviations from predicted investment levels between firms with and without Twitter presence. Cross-sectional and peer analyses provide corroborating evidence that managerial learning is one channel underlying the link between social media and corporate investment. The results suggest that managers learn additional insights about investment opportunities and demand shocks from followers and incorporate such information in investment decisions.

Authors

• Atul Singh, Ball State University

• Vicki Wei Tang, Georgetown University