Corporate Use of Social Media

Abstract

We examine corporate adoption of social media and provide the first large-sample evidence on the determinants and market consequences of the decision to disseminate quarterly earnings news through social media. We find that social media usage for earnings news is distinct from other forms of voluntary disclosure and document a number of interesting attributes of this disclosure mechanism. Social media usage for earnings news is inversely related to the number of social media followers, suggesting that firms with large social media followings are hesitant to use social media for financial information. However, we find that earnings news is more likely to be communicated when the news is positive, suggesting that some firms are opportunistic in their use of social media. Moreover, when we examine the market response to social media communications, we find that trading volume increases and that the primary driver is increases in large rather than small trades. This is inconsistent with the notion that social media primarily benefits small investors. Lastly, we find that the market reaction is stronger for firms that follow a consistent rather than ad hoc social media disclosure policy.