Can Social Media Inform Corporate Decisions? Evidence from Merger Withdrawals

58 Pages Posted: 21 Apr 2022

See all articles by J. Anthony Cookson

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business

Marina Niessner

University of Pennsylvania - The Wharton School

Christoph Schiller

Arizona State University (ASU) - W.P. Carey School of Business

Date Written: March 16, 2022

Abstract

This paper examines the role of social media in informing corporate decision-making by studying the decision of firm management to withdraw an announced merger. A standard deviation decline in abnormal social media sentiment following a merger announcement predicts a 0.73 percentage point increase in the likelihood of merger withdrawal (18.9% of the baseline rate). The informativeness of social media for merger withdrawals is not explained by abnormal price reactions or news sentiment, and in fact, it is stronger when these other signals disagree. Consistent with learning from external information, we find that the social media signal is most informative for complex mergers in which analyst conference calls take a negative tone, driven by the Q&A portion of the call. Overall, these findings imply that social media is not a sideshow, but an important aspect of firm information environment.

Keywords: Social Media, FinTech, Feedback Effects, Capital Allocation, M&A

JEL Classification: F30, F36, G38, Q50

Suggested Citation

Cookson, J. Anthony and Niessner, Marina and Schiller, Christoph, Can Social Media Inform Corporate Decisions? Evidence from Merger Withdrawals (March 16, 2022). Available at SSRN: https://ssrn.com/abstract=4059633 or http://dx.doi.org/10.2139/ssrn.4059633

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Marina Niessner (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Christoph Schiller

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

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