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Mar 17, 2015

Give investors what they want from social media

A roundup of academic reseach from the world of IR studies

Companies today feel significant pressure to establish some form of social media presence. Platforms like Twitter and Facebook have emerged as mainstream communications networks and a cacophony of consultants, service providers and pundits all seem to echo the same message: if you are not on social media, you have no credibility. ‘Join the conversation,’ they urge.

But is yours the conversation social media users are looking for? The results of a recent study suggest it isn’t. ‘Facebook and Twitter are basically analogous to the world’s largest bar,’ observes Neal Snow, a doctoral candidate at the University of South Florida’s School of Accountancy. ‘One might expect similar social norms to prevail in both the physical and electronic versions. You don’t, for example, hear someone yell at a physical bar that Caterpillar has announced third quarter earnings. We wondered whether social media users would be any more interested in financial information.’

Curiously, no one had actually asked users what qualities they desired in a lively corporate conversationalist. Snow, along with Robert Marley, assistant professor of accounting at the University of Tampa, decided to find out.

Polling more than 400 retail investors and general-interest social media users, the researchers discover that neither group is particularly interested in having an interactive conversation. Moreover, even if they were, the conversation wouldn’t be about your company’s financial information.

‘We find little empirical evidence to suggest strong demand for financial content on a company’s social media page, even among non-professional investors,’ says Snow. ‘Instead, they mostly want information that relates to them as customers – and very few want to engage in any sort of back-and-forth dialogue. For the most part, social media users see [corporate use of social media] as just another broadcast signal.’

Accordingly, Snow suggests companies focus their social media efforts on connecting with users in a customer-focused manner.

How to buy investor attention

It has long been known that advertising is an effective way to sell soap. Now comes empirical evidence that ads for soap – or, indeed, for any product – can also help to sell a company’s stock.

‘Advertising intended for consumers also draws the attention of investors to financial information,’ says Marina Niessner, assistant professor of finance at the Yale School of Management. ‘Our data provides causal evidence of an immediate spillover effect of product ads on investor attention and stock price.’

Relating companies’ advertising to Google search volume for their ticker symbols, Niessner and study co-author Joshua Madsen, assistant professor of accounting at the University of Minnesota, find that print advertising days trigger an average 3 percent increase in daily searches (roughly the same effect as news coverage).

But the stock market implications of this increased attention are not always positive. For example, a weekend ad for a stock whose price has trended up in the previous week is associated with a temporary 14 percentage-point decrease over the following two trading days. Niessner notes that these results are consistent with investors’ tendency to sell winners and hold losers and suggests a large portion of the advertising-induced attention is attributable to current rather than potential investors. ‘Placing a consumer ad may still be worth it,’ she says. ‘But managers should know there may be more costs to consider beyond the price of placing the ad.’