#Fail: Social Media, Firm Distress, and Going Concern Opinions

54 Pages Posted: 2 Sep 2020 Last revised: 3 Dec 2020

See all articles by Eric Condie

Eric Condie

Georgia Institute of Technology

James Moon

Georgia Institute of Technology - Scheller College of Business

Date Written: December 2020

Abstract

Audit firms and regulators have both commented extensively on the potential for new sources of data to transform the audit process. We examine whether information on social media could aid auditors’ going concern deliberations and find that more negative social media sentiment, measured using message bearishness and probability of failure derived from a machine-learning algorithm, corresponds to a higher likelihood of firm failure. However, we find minimal evidence that audit opinions incorporate this public information. Additional tests suggest social media sentiment relates positively to the likelihood of several future firm events that often precipitate failure. We also provide evidence that naïve consideration of social media sentiment reduces Type II errors at a faster rate than the commensurate increase in Type I errors. Our evidence should be informative to regulators and audit firms, both of whom are currently evaluating how the proliferation of data can be useful to auditors.

Keywords: StockTwits, Social Media, Sentiment, Auditing, Going-Concern Opinions, Firm Failure

JEL Classification: M40, M41, M42, M49, G33

Suggested Citation

Condie, Eric and Moon, James, #Fail: Social Media, Firm Distress, and Going Concern Opinions (December 2020). Available at SSRN: https://ssrn.com/abstract=3659762 or http://dx.doi.org/10.2139/ssrn.3659762

Eric Condie (Contact Author)

Georgia Institute of Technology ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

James Moon

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

800 West Peachtree St.
Atlanta, GA 30308
United States

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