If You Tweet, They Will Follow: CEO Tweets, Social Capital, and Investor Say-on-Pay Judgments

Abstract

Chief Executive Officers (CEO) are increasingly using social media to disclose information and communicate with investors. Although findings from archival research show some benefits to social media use at the aggregate level, little is known about how the social nature of this disclosure channel affects individual investors. Accordingly, we develop a theoretical mediation model based on social capital theory that predicts that social media disclosure channels lead investors to perceive enhanced feelings of connectedness (i.e., social capital) with the CEO, resulting in more positive judgments of the CEO. Specifically, our model predicts that CEO disclosures via Twitter, as compared to web-based disclosures, lead to enhanced perceptions of social capital, which in turn positively impact investor recommendations for CEO compensation. Using an experiment with individual investor participants, our results provide robust support for our theoretical mediation model. Our findings enhance our understanding of how CEOs’ social media use influences individual investors and have important implications for standard setters, investors, and firms.

Keywords: Twitter, Parasocial Interaction, Social Capital Theory, Say-on-Pay

JEL Classification: M40, M41, D83, C91