Financial analysis on social media and disclosure processing costs: Evidence from Seeking Alpha

68 Pages Posted: 8 Nov 2018 Last revised: 15 Feb 2022

See all articles by Enrique Gomez

Enrique Gomez

Temple University

Frank Heflin

University of Georgia - J.M. Tull School of Accounting

James Moon

Georgia Institute of Technology - Scheller College of Business

James Warren

University of Arkansas

Date Written: February 14, 2022

Abstract

Research suggests investors face differential information processing costs at earnings announcements (EA), placing some investors at an information disadvantage. We find evidence suggesting financial analysis on social media in the weeks preceding an EA mitigates the information processing disadvantage some investors face at EAs, as evidenced by attenuated spikes in information asymmetry. Cross-sectional evidence suggests these results are more pronounced for analyses written by more credible authors, analyses more likely relevant to evaluating the EA, and firms operating in poorer information environments. Further evidence suggests retail trades, but not institutional trades, at EAs are significantly more profitable in quarters with greater financial analysis on social media, consistent with financial analysis on social media benefitting traders who are otherwise less informed. Overall, our evidence is consistent with financial analysis on social media playing an important role in aiding less informed investors by helping them better process EA news.

Keywords: Social Media, Information Asymmetry, Earnings Announcements

JEL Classification: M41, M21, G00, G12, O33

Suggested Citation

Gomez, Enrique and Heflin, Frank and Moon, James and Warren, James, Financial analysis on social media and disclosure processing costs: Evidence from Seeking Alpha (February 14, 2022). Georgia Tech Scheller College of Business Research Paper No. 18-45, Available at SSRN: https://ssrn.com/abstract=3274644 or http://dx.doi.org/10.2139/ssrn.3274644

Enrique Gomez

Temple University ( email )

Philadelphia, PA 19122
United States

Frank Heflin

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-1616 (Phone)
706-542-3630 (Fax)

James Moon (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

James Warren

University of Arkansas ( email )

220 N McIlroy Ave
Fayetteville, AR 72701
United States

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