Regulating via Social Media: Deterrence Eﬀects of the SEC's Use of Twitter
59 Pages Posted: 2 Nov 2021
Date Written: November 1, 2021
This paper presents the ﬁrst evidence of the eﬀect of ﬁnancial regulators’ social media use on corporate and individual behavior. Using the staggered launch of U.S. Securities and Exchange Commission (SEC) regional oﬃces’ Twitter accounts, I ﬁnd that ﬁnancial regulators’ presence on social media reduces opportunistic insider trading, customer complaints against investment advisers, and ﬁnancial misreporting. Additional tests suggest that the salience and dissemination of regional oﬃces’ enforcement activities via Twitter play a role. The deterrence eﬀect of SEC regional oﬃces’ Twitter use is concentrated among oﬃces with more followers, ﬁrms with more retail investors, and advisers with more retail clients. I also show that investors react more strongly to enforcement actions after the enforced ﬁrm’s regional oﬃce initiates Twitter use. Taken together, the results suggest that ﬁnancial regulators’ use of social media helps deter misconduct.
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