Do Firms Strategically Disseminate? Evidence from Corporate Use of Social Media

Jung, M J, Naughton, J P, Tahoun, A and Wang, C (2018) Do Firms Strategically Disseminate? Evidence from Corporate Use of Social Media. Accounting Review, 93 (4). pp. 225-252. ISSN 0001-4826

Abstract

We examine whether firms strategically disseminate information to the public. While strategic disclosure refers to the revelation of voluntary information, strategic dissemination refers to a firm’s decision to use or not use certain channels of communication to disseminate voluntary and mandatory information. Thus, the dissemination decision goes beyond the disclosure decision and reveals how firms try to control their information environment. Analyzing S&P 1500 firms’ use of Twitter to disseminate quarterly earnings announcements, we find that firms are less likely to disseminate via Twitter when the news is bad and when the magnitude of the bad news is worse, consistent with strategic behavior. Furthermore, firms tend to send fewer earnings announcement tweets and “rehash” tweets when the news is bad. Cross-sectional analyses suggest incentives for strategic dissemination are higher for firms with a lower level of investor sophistication and firms with a larger social media audience. We also find that strategic dissemination behavior is detectable in high litigation risk firms but not low litigation risk firms. Finally, we find evidence that the tweeting of bad news and the subsequent retweeting of that news by a firm’s followers are associated with more negative news articles written about the firm by the traditional media, highlighting a potential downside to Twitter dissemination.