If the Tweet Fits

In 1964, when Marshall McLuhan penned the words “The medium is the message,” he probably had no idea how meaningful they would be to the financial industry in 2017.

A study co-authored by Neal M. Snow, an assistant professor of accounting at Lehigh, examines whether there is a difference between receiving financial information from social media or from a more traditional medium such as a company’s website.

The study’s first goal was to determine whether non-sophisticated investors process differently the financial information they receive from social media as opposed to the company’s website.

The research, co-authored by Jason Rasso of the Darla Moore School of Business at the University of South Carolina, additionally found that bad financial news is best received on social media when delivered by a company or firm rather than by the CEO—a person they “know.”

Since its inception, social media has been used as a way to share information between friends and family—what we’re eating at our favorite restaurant right now, amazing cat videos, how to make fried mac and cheese, and so on. But when it comes to hard, fact-based financial news such as earnings and sales figures, perhaps that’s the way it should remain, Snow says.

As part of the genre’s eventual evolution, companies were told that they must “get with the times” and have a social media presence. Even though companies most commonly use social media channels as a marketing tool to deliver positive spin on news and information about products, some began to use it to announce financial results. Today, almost 50 percent of S&P 1500 firms roll out formal and informal information about their businesses, the study says. Of those, half have used social media to announce quarterly earnings and other financial disclosures.

“Because financial information is much more factual in nature,” Snow and Rasso’s report says, “using social media to communicate such factual information could be perceived as a poor fit between information content and the communication channel.”

An additional stumbling block, Snow says, is the subject matter itself. Along with religion, sex and politics, discussing money is a real “taboo” when face to face with another person.

“It’s a scary topic, and no norms have yet been established” to guide the free discussion of money and finances, Snow says.

In any case, companies have been told they’ll be “left behind” if they don’t use social media to the fullest. They just don’t know how to make it work.

“Companies are like the geeky kids at a party,” Snow says. “They’re glad to be there, but once they’re there, they’re trying to figure out how to be cool. They want to, but they just don’t know how.”

Corporations are trying to balance what the social protocols are and how financial information fits into what people expect to see on, say, Twitter.

Snow suspects that it might not be a bad idea for companies to let go of the attempt to use Twitter to deliver quarterly earnings or sales figures. In the case of delivering serious financial information, it might be okay to be “left behind.”

“This boat may not be taking them where they want to go,” Snow says.

The study also found that receiving financial information via any social medium creates a cognitive dissonance, or an uncomfortable feeling that happens when a behavior does not jibe with an attitude or belief.
The study further suggests that delivering financial information via Twitter could even go beyond influencing investors’ decisions to damage the image of management.

“We find that when the source normally sends social information, consistent with the purpose of social media, reactions to good financial news is better, regardless of the source of the information.

“However, when reporting bad news, the source of the financial information matters. Participants found the company’s stock to be more attractive, had higher perceptions of management’s competence and had more trust in management when the bad news came from the company’s Twitter feed as opposed to the CEO’s Twitter feed.”

Readers are more skeptical of any information delivered on Twitter, Snow says. They don’t assess the information as critically as they do when they receive it from a more familiar or traditional source.

Future studies could examine the changing role of social media—or whatever social media evolves to be—as the next generation of investors steps up to trade.

Why it Matters:

When delivering hard financial news, the medium matters. Using a corporate social media platform may have a negative effect.

Story by Mariella Miller