Is Corporate Tweeting Informative or is it Just Hype? Evidence from the SEC Social Media Regulation

Abstract

Using textual analysis, I identify corporate tweets that contain financial information and study their impact on market prices. Prior to the April 2, 2013 SEC regulation allowing firms to use social media as an official news outlet, financial tweets appear to have been mostly hype in that prices do not respond to firms’ own tweeting. Following the regulation, tweeting appears to be informative – leading to a 19.5 basis points return on tweeting days that is not subsequently reversed. Moreover, firms strategically tweet negative information at times of low investor attention, such as Friday afternoons. The results suggest that firms actively use social media to communicate fundamental information to investors.

Keywords: Social Media, Twitter, Textual Analysis, Information Asymmetry, Disclosure

JEL Classification: G10, G12, G14