The Role of Dissemination in Market Liquidity: Evidence from Firms' Use of Twitter

50 Pages Posted: 11 Aug 2010 Last revised: 9 Oct 2015

See all articles by Elizabeth Blankespoor

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business; University of Washington - Department of Accounting

Gregory S. Miller

University of Michigan, Stephen M. Ross School of Business

Hal D. White

University of Notre Dame

Date Written: April 24, 2013

Abstract

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.

Keywords: Disclosure, Dissemination, Liquidity, Information Asymmetry, Bid-Ask Spread, Twitter, Social Media

JEL Classification: D82, M00, M20, M49

Suggested Citation

Blankespoor, Elizabeth and Miller, Gregory S. and White, Hal D., The Role of Dissemination in Market Liquidity: Evidence from Firms' Use of Twitter (April 24, 2013). Accounting Review, 2014, Vol. 89, No. 1, pp.79-112, Rock Center for Corporate Governance at Stanford University Working Paper No. 135, Available at SSRN: https://ssrn.com/abstract=1657169 or http://dx.doi.org/10.2139/ssrn.1657169

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

University of Washington - Department of Accounting ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States

Gregory S. Miller (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Hal D. White

University of Notre Dame ( email )

389C Mendoza College of Business
University of Notre Dame
Notre Dame, IN 46556
United States
574-361-3809 (Phone)

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