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

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

Elizabeth Blankespoor

Stanford University - Graduate School of Business

Gregory S. Miller

University of Michigan, Stephen M. Ross School of Business

Hal D. White

Penn State University

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

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
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

Penn State University ( email )

210 Business Building
Smeal College of Business
University Park, PA 16802-3306
United States
814-863-7055 (Phone)

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