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

52 Pages Posted: 2 Sep 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: July 24, 2020

Abstract

Research identifies a number of settings in which the opinions of social media users reflect information useful to capital market participants, including investors and analysts. We extend this research by examining whether social media could be useful for auditors. Specifically, we investigate whether the opinions of users on the social media platform StockTwits are useful for evaluating firms in financial distress. We find that social media sentiment, measured using message bearishness and probability of failure derived from a machine-learning algorithm, relates positively to both the likelihood of firm failure and the likelihood a firm’s auditor issues a going-concern opinion. However, we find minimal evidence that the presence of a going-concern opinion mediates the association between social media sentiment and failure, suggesting auditors do not fully incorporate this publicly available information. We also provide evidence that naïve consideration of social media sentiment reduces Type II errors at a faster rate than the corresponding 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 on social media 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 (July 24, 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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