The Chilling Effect of Regulation FD: Evidence from Twitter
47 Pages Posted: 31 May 2019
Date Written: April 2019
We use Twitter to examine whether the level playing field requirement of Regulation Fair Disclosure (“Reg-FD”) chills the adoption and use of new disclosure technologies. We focus on Twitter because prior studies have established that the corporate use of Twitter generates capital market benefits for the firm. We generate inferences using the unexpected endorsement of social media following an SEC investigation (“Reg-SocMedia”). Our analyses indicate that there were substantial changes in the use of Twitter and in the market response to firms’ financial tweets following Reg-SocMedia. We find a non-transitory stock price response of 25 basis points to financial tweets following Reg-SocMedia, compared with no detectable response before Reg-SocMedia. This finding persists on days with no concurrent disclosures, and is stronger for firms with more Twitter followers. We also find a substantial increase in followers for financial tweeting firms, suggesting that investors are responding to changes in firms’ tweeting practices. Collectively, our findings suggest that firms were reluctant to use Twitter for communicating value relevant financial information without SEC guidance related to Reg-FD. This finding is consistent with the notion that Reg-FD has potentially slowed the adoption of valuable new disclosure technologies.
Keywords: Regulation FD, Social Media
JEL Classification: G15, G18, M41
Suggested Citation: Suggested Citation