The Emergence of "Social Executives" and Its Consequences for Financial Markets

Abstract

We document the emergence of “social executives,” top executives who connect with investors directly, personally, and in real time through social media, and we study the consequences of this development for financial markets. We contend that the emergence of social executives enables retail investors to obtain value-relevant information to which they previously had no access. Social executives also grab investor attention. Building on the finance market microstructure literature, we argue that both improving access to value-relevant information and attracting investor attention help widen a firm’s retail investor base and improve stock market liquidity. Using data reflecting the personal Twitter account activity of the CEOs and CFOs of the largest publicly traded companies in the United States, we find evidence consistent with our argument. Utilizing the Securities and Exchange Commission’s recent embrace of social media as a plausibly exogenous shock, we also provide evidence for a causal link. We conclude that the emergence of social executives has important consequences for financial markets.

Keywords: Social executives, Social Media, Retail Investors, Stock Markets

JEL Classification: G12, G14, G38, M41, M48