The Role of Dissemination in Market Liquidity: Evidence from Firms' Use of Twitter
Stanford University - Graduate School of Business
Gregory S. Miller
University of Michigan, Stephen M. Ross School of Business
Hal D. White
University of Michigan at Ann Arbor - The Stephen M. Ross School of Business; Penn State University
April 24, 2013
Accounting Review, Forthcoming
Rock Center for Corporate Governance at Stanford University Working Paper No. 135
Firm disclosures often reach only a portion of investors, which results in information asymmetry among investors, and therefore lower market liquidity. This issue is particularly salient for firms that are not highly visible, as they tend not to receive broad news dissemination via traditional intermediaries, such as the press. This paper examines whether firms can reduce information asymmetry by more broadly disseminating their news. To isolate the impact of dissemination, we focus our analysis on firms' use of Twitter and exploit the 140-character message restriction. Specifically, using a sample of technology firms, we examine the impact of using Twitter to send market participants links to press releases that are provided via traditional disclosure methods. We find this additional dissemination of firm-initiated news via Twitter is associated with lower abnormal bid-ask spreads and greater abnormal depths, consistent with a reduction in information asymmetry. Moreover, this result holds mainly for firms that are not highly visible, consistent with them being in greater need of this additional dissemination channel. We also examine the impact of dissemination on a volume-based measure of liquidity, and find that dissemination is positively associated with liquidity.
Number of Pages in PDF File: 1
Keywords: Disclosure, Dissemination, Liquidity, Information Asymmetry, Bid-Ask Spread, Twitter, Social Media
JEL Classification: D82, M00, M20, M49Accepted Paper Series
Date posted: August 11, 2010 ; Last revised: August 7, 2013
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