Regulating via Social Media: Deterrence Effects of the SEC's Use of Twitter

57 Pages Posted: 2 Nov 2021 Last revised: 3 Jan 2024

See all articles by Raphael Duguay

Raphael Duguay

Yale School of Management; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Jinjie Lin

Yale School of Management

Jacob K. Thomas

Yale School of Management

Laiyi Yin

Yale School of Management

Date Written: January 2, 2024

Abstract

We evaluate the effect of financial regulators’ social media use on misconduct by regulated entities. We study whether misconduct by firms and investment advisors declines around the staggered launch of Twitter accounts by regional offices of the U.S. Securities and Exchange Commission (SEC). Even though the tweets repackage information available on the SEC’s website, we find a reduction in opportunistic insider trading and financial misreporting for firms, and a reduction in customer complaints against investment advisers. Consistent with the tweets making enforcement actions more salient and widely disseminated, this deterrence effect is concentrated among (i) regional SEC offices with more Twitter followers and (ii) investment advisers with more retail clients. In addition, we find Twitter adoption expands local press coverage of the SEC’s work and the stock market reacts more strongly to SEC enforcement actions. Taken together, our results suggest that financial regulators’ use of social media, a relatively low-cost intervention, helps deter misconduct.

Keywords: Financial Regulator, Social Media, Corporate Misconduct

JEL Classification: G18, G20, G28, K2

Suggested Citation

Duguay, Raphael and Lin, Jinjie and Thomas, Jacob and Yin, Laiyi, Regulating via Social Media: Deterrence Effects of the SEC's Use of Twitter (January 2, 2024). Available at SSRN: https://ssrn.com/abstract=3952904

Raphael Duguay (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511
United States

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Jinjie Lin

Yale School of Management ( email )

493 College St
New Haven, CT CT 06520
United States

Jacob Thomas

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Laiyi Yin

Yale School of Management ( email )

199 Whitney Avenue
New Haven, CT CT 06511
United States

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