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The Role of Dissemination in Market Liquidity: Evidence from Firms' Use of Twitter

Author

Listed:
  • Blankespoor, Elizabeth

    (Stanford University)

  • Miller, Gregory S.

    (University of MI)

  • White, Hal D.

    (University of MI)

Abstract

Firm disclosures often reach only a portion of investors, which results in information asymmetry among investors, and therefore lower market liquidity. This issue is particularly salient for firms that are not highly visible, as they tend not to receive broad news dissemination via traditional intermediaries, such as the press. This paper examines whether firms can reduce information asymmetry by more broadly disseminating their news. To isolate the impact of dissemination, we focus our analysis on firms' use of Twitter and exploit the 140-character message restriction. Specifically, using a sample of technology firms, we examine the impact of using Twitter to send market participants links to press releases that are provided via traditional disclosure methods. We find this additional dissemination of firm-initiated news via Twitter is associated with lower abnormal bid-ask spreads and greater abnormal depths, consistent with a reduction in information asymmetry. Moreover, this result holds mainly for firms that are not highly visible, consistent with them being in greater need of this additional dissemination channel. We also examine the impact of dissemination on a volume-based measure of liquidity, and find that dissemination is positively associated with liquidity.

Suggested Citation

  • Blankespoor, Elizabeth & Miller, Gregory S. & White, Hal D., 2013. "The Role of Dissemination in Market Liquidity: Evidence from Firms' Use of Twitter," Research Papers 2106r, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:2106r
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    File URL: http://aaajournals.org/doi/abs/10.2308/accr-50576
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    Cited by:

    1. Kim, Min & Stice, Derrald & Stice, Han & White, Roger M., 2021. "Stop the presses! Or wait, we might need them: Firm responses to local newspaper closures and layoffs," Journal of Corporate Finance, Elsevier, vol. 69(C).
    2. Costello, Anna M. & Down, Andrea K. & Mehta, Mihir N., 2020. "Machine + man: A field experiment on the role of discretion in augmenting AI-based lending models," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    3. Ahmad H. Juma’h & Yazan Alnsour, 2018. "Using Social Media Analytics: The Effect of President Trump’s Tweets On Companies’ Performance," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 17(1), pages 100-121, March.
    4. Aouadi, Amal & Arouri, Mohamed & Roubaud, David, 2018. "Information demand and stock market liquidity: International evidence," Economic Modelling, Elsevier, vol. 70(C), pages 194-202.
    5. Reyes, Tomas & Batista, Julian A. & Chacon, Alvaro & Martinez, Diego & Kausel, Edgar E., 2023. "Attention-driven reaction to extreme earnings surprises," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 230-248.
    6. Reyes, Tomas, 2018. "Limited attention and M&A announcements," Journal of Empirical Finance, Elsevier, vol. 49(C), pages 201-222.
    7. Stephen Taylor & Alex Tong, 2020. "How efficient is the market for Australian firms’ earnings information?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 4225-4255, December.
    8. Brown, Nerissa C. & Elliott, W. Brooke & Wermers, Russ & White, Roger M., 2021. "News or noise: Mobile internet technology and stock market activity," CFR Working Papers 21-10, University of Cologne, Centre for Financial Research (CFR).
    9. Svenja Dube & Chenqi Zhu, 2021. "The Disciplinary Effect of Social Media: Evidence from Firms' Responses to Glassdoor Reviews," Journal of Accounting Research, Wiley Blackwell, vol. 59(5), pages 1783-1825, December.
    10. Jordi Paniagua & Rafael Rivelles & Juan Sapena, 2019. "Social Determinants of Success: Social Media, Corporate Governance and Revenue," Sustainability, MDPI, vol. 11(19), pages 1-17, September.
    11. Pennington, Robin R. & Kelton, Andrea Seaton, 2016. "How much is enough? An investigation of nonprofessional investors information search and stopping rule use," International Journal of Accounting Information Systems, Elsevier, vol. 21(C), pages 47-62.
    12. Sun, Kunpeng & Wang, Dan & Xiao, Xing, 2022. "Another victory of retail investors: Social media's monitoring role on firms' earnings management," International Review of Financial Analysis, Elsevier, vol. 82(C).
    13. Minjian Ye & Guangzhong Li, 2017. "Internet big data and capital markets: a literature review," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-18, December.
    14. Huang, Yin-Siang & Bui, Dien Giau & Lin, Chih-Yung & Robin,, 2022. "The effect of abnormal institutional attention on bank loans," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    15. Milla Siikanen & Kk{e}stutis Baltakys & Juho Kanniainen & Ravi Vatrapu & Raghava Mukkamala & Abid Hussain, 2017. "Facebook drives behavior of passive households in stock markets," Papers 1709.07300, arXiv.org, revised May 2018.
    16. Bonsall, Samuel B. & Green, Jeremiah & Muller, Karl A., 2020. "Market uncertainty and the importance of media coverage at earnings announcements," Journal of Accounting and Economics, Elsevier, vol. 69(1).
    17. Glaeser, Stephen & Guay, Wayne R., 2017. "Identification and generalizability in accounting research: A discussion of Christensen, Floyd, Liu, and Maffett (2017)," Journal of Accounting and Economics, Elsevier, vol. 64(2), pages 305-312.
    18. Aziz Simsir, Serif & Simsek, Koray D., 2022. "The market impact of private information before corporate Announcements: Evidence from Turkey," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    19. Silvio Vismara, 2018. "Information Cascades among Investors in Equity Crowdfunding," Entrepreneurship Theory and Practice, , vol. 42(3), pages 467-497, May.
    20. Francisco Guijarro & Ismael Moya-Clemente & Jawad Saleemi, 2019. "Liquidity Risk and Investors’ Mood: Linking the Financial Market Liquidity to Sentiment Analysis through Twitter in the S&P500 Index," Sustainability, MDPI, vol. 11(24), pages 1-13, December.
    21. Zu, Xu & Diao, Xinyi & Meng, Zhiyi, 2019. "The impact of social media input intensity on firm performance: Evidence from Sina Weibo," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 536(C).
    22. Amal Aouadi & Sylvain Marsat, 2018. "Do ESG Controversies Matter for Firm Value? Evidence from International Data," Journal of Business Ethics, Springer, vol. 151(4), pages 1027-1047, September.

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