The Role of Social Media in Corporate Governance

The Accounting Review, forthcoming

57 Pages Posted: 9 Jul 2020

See all articles by James S. Ang

James S. Ang

Florida State University; Florida State University - College of Law

Charles Hsu

Hong Kong University of Science & Technology

Di Tang

Shanghai University of Finance and Economics

Chaopeng Wu

Xiamen University - School of Management

Date Written: February 20, 2020

Abstract

We examine whether social media criticisms posted by small investors can predict subsequent firm acquisition decisions. Specifically, we use textual analysis to examine the Internet stock message board postings of 303 value-reducing acquisition attempts. Our empirical evidence shows that small investors’ negative postings are able to predict a potential acquirer’s subsequent decision to withdraw its attempt. We further find that this predictive ability increases with the information quality of postings, and that the predictive information extracted from social media is incremental to that captured by proposal announcement returns, conventional media coverage, analyst reports, and institutional investors’ responses related to the proposed acquisition. Finally, we show that message board criticisms are also able to predict governance outcomes beyond acquisition decisions. Overall, our results are consistent with the notion that social media play a role in corporate governance by gathering crowd wisdom and uncovering additional value-relevant information.

Keywords: social media, corporate governance, acquisitions, wisdom of crowds

JEL Classification: G34, G14, M41

Suggested Citation

Ang, James S. and Hsu, Charles and Tang, Di and Wu, Chaopeng, The Role of Social Media in Corporate Governance (February 20, 2020). The Accounting Review, forthcoming, Available at SSRN: https://ssrn.com/abstract=3609720

James S. Ang

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Charles Hsu

Hong Kong University of Science & Technology ( email )

Hong Kong
Hong Kong
852-2358-7568 (Phone)
852-2358-1693 (Fax)

Di Tang

Shanghai University of Finance and Economics ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Chaopeng Wu (Contact Author)

Xiamen University - School of Management ( email )

No.422 Siming Nan Road
Xiamen, Fujian 361005
China

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