Can social media protect retail investors? Evidence from China mergers and acquisitions

Abstract

ABSTRACT Mergers and acquisition is one of particularly brazen forms of controlling shareholders and managers to extract private benefits from retail investors in China. This study examines whether social media can play a positive role in impeding the opportunistic M&A actives. Using textual analysis to examine the effect of the Internet stock message board postings on M&A process, we find that retail investors’ critical postings elicit negative market reaction, lower the acquisition premiums, and even make controlling shareholders and managers to withdraw the M&A attempt. Our results are consistent with the notion that social media play a role in corporate governance and the protection of retail investors’ interests.