Twitter as customer’s eWOM: an empirical study on their impact on firm financial performance

Abstract

PurposeThe purpose of this paper is to investigate the relationship between customer’s electronic word-of-mouth (eWOM) regarding their direct service experiences with firms and these firms’ company value. The authors drew on the marketing-finance interface research approach to demonstrate how interactive social media adopted by individual customer relate to important firms’ financial performances.Design/methodology/approachThe authors used seven American airline companies’ customers’ tweets collected during a 52-week observation period and paired with their corresponding financial data using stock returns and volatilities. Sentiment analysis algorithm and a vector autoregressive (VAR) model quantified the strong association between customer’s eWOM and these firms’ stock returns and volatilities.FindingsThe results show that customer’s eWOM regarding a firm positively associate with the firm’s stock return but negatively associate with its stock volatility; as negative valence of customer’s eWOM increases, the positive effect of eWOM on firm’s stock return decreases; the negative eWOM impacts on the stock market more profoundly compared with when both positive and negative sensitivities are considered; and eWOM’s wear-out effect is much shorter than that of traditional WOM.Originality/valueThe authors address a literature gap where little is known for how customer’s eWOM, that is evaluating firm services, can ultimately impact on firms’ long-term financial performances. The authors discuss how findings from this study offer implications for marketing management as well as strategic insights for practitioners and investment analysts alike.