Crowdsourced Financial Analysis and Information Asymmetry at Earnings Announcements

Abstract

Research suggests certain investors face significant information disadvantages, particularly during earnings announcements. We investigate whether financial analysis on Seeking Alpha, a prominent social media platform hosting original financial analysis, can mitigate this disadvantage. First, we find reduced information asymmetry and increased retail trading on days when financial analysis is posted on Seeking Alpha. Second, we find that more financial analysis on social media during the weeks before an earnings announcement attenuates earnings announcement information asymmetry. Cross-sectional evidence suggests our earnings announcement results are more pronounced for (1) analyses written by more credible authors, (2) analyses more likely relevant to evaluating the earning announcement, (3) firms operating in poorer information environments, and (4) earnings announcements occurring on busier days. Overall, our evidence suggests financial analysis on social media plays an important role in leveling the playing field among investors by reducing disclosure processing costs.