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The Role of Social Media in the Capital Market: Evidence from Consumer Product Recalls

Journal of accounting research, 2015-05, Vol.53 (2), p.367-404 [Peer Reviewed Journal]

2015 The Accounting Research Center at the University of Chicago Booth School of Business ;Copyright ©, University of Chicago on behalf of the Accounting Research Center, 2015 ;ISSN: 0021-8456 ;EISSN: 1475-679X ;DOI: 10.1111/1475-679X.12074 ;CODEN: JACRBR

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  • Title:
    The Role of Social Media in the Capital Market: Evidence from Consumer Product Recalls
  • Author: LEE, LIAN FEN ; HUTTON, AMY P. ; SHU, SUSAN
  • Subjects: Accounting research ; Capital market ; Capital markets ; Content analysis ; disclosure ; Economic analysis ; G14 ; M15 ; M40 ; M41 ; Product recalls ; Social media ; Social networks ; Telecommunications industry ; Twitter
  • Is Part Of: Journal of accounting research, 2015-05, Vol.53 (2), p.367-404
  • Description: We examine how corporate social media affects the capital market consequences of firms' disclosure in the context of consumer product recalls. Product recalls constitute a "product crisis" exposing the firm to reputational damage, loss of future sales, and legal liability. During such a crisis it is crucial for the firm to quickly and directly communicate its intended message to a wide network of stakeholders, which, in turn, renders corporate social media a potentially useful channel of disclosure. While we document that corporate social media, on average, attenuates the negative price reaction to recall announcements, the attenuation benefits of corporate social media vary with the level of control the firm has over its social media content. In particular, with the arrival of Facebook and Twitter, firms relinquished complete control over their social media content, and the attenuation benefits of corporate social media, while still significant, lessened. Detailed Twitter analysis confirms that the moderating effect of social media varies with the level of firm involvement and with the amount of control exerted by other users: the negative price reaction to a recall is attenuated by the frequency of tweets by the firm, while exacerbated by the frequency of tweets by other users.
  • Publisher: Chicago: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 0021-8456
    EISSN: 1475-679X
    DOI: 10.1111/1475-679X.12074
    CODEN: JACRBR
  • Source: Alma/SFX Local Collection
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