“To Talk or Not?: An analysis of firm-initiated social media communication’s impact on firm value preservation during a massive disruption across multiple firms and industries”

Journal: Decision Sciences (DSJ)

The authors examine the role of firm-initiated social media communication using Twitter in mitigating the negative impact of large-scale disruptions, such as the COVID-19 pandemic, on the shareholder value of firms. They develop their hypotheses using signalling theory and test them using data collected from Twitter and Bloomberg®. Their dataset consists of 121,988 firm-generated tweets from 467 S&P 500 firms collected in March 2020 at the time of the lockdown announcement in the US. They find that frequent and relevant communication reduces latency and increases the observability of messages, preserving a firm’s shareholder value. They also find that a positive outlook and extent of interest from stakeholders results in preserving shareholder value. On average, firms lost about 1.08% of their market value per day (about 9.72% during the nine-day period around the lockdown announcement). Their study contributes to the extant literature in three ways – 1) Adds to the literature on disruptions – shareholder value by considering large-scale disruptions such as the COVID-19 pandemic 2) Highlights informational and communication elements of risk management strategy and 3) Adds to the growing body of literature on Twitter by considering firm-generated tweets. The results of their study are of importance to managers as well. For instance, firms tweeted about 57 times per week, and each additional tweet could preserve about $5.85 million of a firm’s market valuation, on average. Also, it is not enough that the firms took appropriate actions during a large-scale disruption, they also need to communicate their actions and its implications to their stakeholders effectively. These results can help managers devise their Twitter communication strategy during large-scale disruptions.