Social Media and Corporate Communications

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In a recent paper titled “The battle of social media platforms: The use of Twitter, YouTube and Instagram in corporate communication,” author Pawel Bilinski analyzes whether using social media channels helps investors interpret earnings information.

The study focuses on companies that are included in the FTSE 100 index and, within that, on earnings announcements only.  In the period from January 2015 to April 2018, 64% of the FTSE 100 companies used Twitter to communicate earnings news.  Use of social media is more common among consumer and retail companies.  Most companies used Twitter, with usage of Instagram and YouTube being considerably lower.  The author considered whether use of social media strengthened the impact of earnings news.  Companies using Twitter had higher earnings responses.  Retail ownership increases in companies that communicate through social media.  A higher number of Twitter and YouTube Posts leads to more positive price reaction.  Social media communication is seen by investors as signaling a commitment to greater transparency.  The authors also considered whether higher press coverage for companies reduces the usefulness of social media posts, but found that Twitter postings lead to incrementally higher price reactions.  Finally, the study suggests that posts help align investor expectations about a company’s prospects.  Research analysts also have a more positive reaction to such posts.  By contrast, YouTube and Instagram usage appears to have little to no effect on investors’ ability to interpret earnings news.  All of this suggests that greater attention may need to be devoted to social media as part of a public company’s communications policy.

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