Social Media Disclosure and Reputational Damage
Review of Quantitative Finance and Accounting, 2024
48 Pages Posted: 29 Nov 2023 Last revised: 22 Jan 2024
Date Written: January 20, 2024
Abstract
We provide new evidence on the effects of social media in the context of a financial scandal using a sample of banks that were accused of manipulating the London Interbank Offered Rate (LIBOR). We find that increased bank Twitter activity when the scandal surfaced has a positive moderating effect on equity returns. However, the dissemination of content operated by social media users has a negative counterbalancing effect, thus amplifying the impact of the scandal. In particular, tweets that are unrelated to the scandal and characterized by positive sentiment contribute to exacerbating the reputational damage suffered by banks. We contribute to the emerging literature on the role of social media in capital markets.
Keywords: Disclosure, LIBOR Scandal, Operational Risk, Reputation, Social Media, Twitter
JEL Classification: G10, G14, G21, M41
Suggested Citation: Suggested Citation