Everyone Has an Opinion: The Informativeness of Social Media's Response to Management Guidance

Abstract

We examine whether the social media reaction to a firm's disclosure provides insight into the quality of that disclosure. Specifically, we focus on the sentiment of posts on Stocktwits following management forecast announcements. Our findings suggest that Stocktwits sentiment accurately predicts the subsequently revealed bias in management forecasts, particularly for the first annual forecast of the fiscal year. More positive or negative sentiment on Stocktwits signals potential pessimism or optimism, respectively, in the forecast. Sentiment following the first annual forecast announcement also predicts future forecast revisions. For posts more relevant to predicting forecast revisions, investors appear to impound information about the revision earlier. Finally, analysts appear to revise their forecasts in the direction of Stocktwits sentiment, but these revisions may not fully incorporate the information contained in the sentiment. Overall, our results indicate that the social media reaction to management forecasts provides a timely and accurate reflection of the forecast's quality, but capital market participants do not fully incorporate this information at the time of the forecast.

Keywords: Management Guidance, Social Media, StockTwits, Analyst Forecasts

JEL Classification: D84, G14, M41