Careful crafting of social media earnings posts can substantially increase price reactions

New research from Bayes Business School (formerly Cass) shows that corporations can maximise price reactions to earning announcements through effective crafting of social media communication.

The study by Dr Pawel Bilinski, Reader in Accounting at Bayes, finds that mentions of revenue figures in company Twitter posts grow price reactions to positive results by as much as 2.4 times more than one without, with mentions of the CEO increasing price reactions by up to 1.7 times.

The study examined the content of corporate tweets relating to company earnings announcements and the impact this had on price reactions, as well as the incremental usefulness of disseminating this information further on Youtube and Instagram.

Companies are increasingly using social media as a tool for disseminating as-it-happens earnings news and building their brands, and the research is the first of its kind to explore how the content of social media posts can impact short-term price reactions to earnings results announcements.

By examining how social media affects price reactions to earnings surprises, the research considers the role of social media in steering investor demand and affecting share value.

Key findings from the research include:

• Price reactions to earnings surprises increase by up to 2.4 times when Twitter communications mention revenue.
• Twitter communications mentioning operating performance figures can grow price reactions by 1.7 times.
• Mentioning the CEO or CFO in earnings announcements on Twitter can also increase price reaction to earnings surprises by 1.7 times, because it adds authenticity.
• Moderate language in Twitter communications, rather than over-optimistic wording, is more positively associated with stronger price reactions.
• Including a picture or video in a tweet increases price reactions by 1.1 times, and includinga ‘cashtag’increases them by 1.3 times.
• Price reactions are incrementally stronger for firms with higher retail ownership.
• Youtube and Instagram do not significantly complement Twitter as drivers of price reactions though they may matter when retail ownership is high.

The research used contents of annual and semi-annual earnings announcements on social media by FTSE100 firms in the period between January 2015 and April 2018. Each social post was read for verification to check that they were investor-focused rather than customer-centric communications.

Dr Bilinski said the study had key implications for accounting and markets in an age of social media communication.

“This research highlights how important language and presentation of financial results on social media channels are,” Dr Bilinski said.

“Platforms like Twitter are critical for delivering this information to investors, particularly retail investors who face considerable barriers to accessing complex financial information.

“Social media platforms can make firm disclosures available to millions around the world at low cost and instantaneously, and the posts can be easy to comprehend.

“By offering transparency, authenticity and visual clarity via social media, companies can significantly grow their value to investors and increase shareholder wealth.”

‘The Content of Tweets and the Usefulness of YouTube and Instagram in Corporate Communication’ by Dr Pawel Bilinski is published in the European Accounting Review.

Find out more about Bayes Business School's MSc Corporate Finance programme.