Beyond Disclosure: Signaling Corporate Ties on Social Media
Abstract
This study sheds light on the "social" (relational) dimension of social media. We present novel evidence that firms use positive peer tweets as a form of corporate social signaling to indicate economic ties with other firms. By analyzing firms that share positive information about their peers, we examine the determinants, information content, and capital market consequences of positive peer tweeting. We find that positive peer tweeting is associated with economic relatedness, the demand for legitimacy, and litigation risk. These tweets predict future inter-firm collaborations, conveying information not readily available through traditional disclosures channels. Furthermore, positive peer tweets generate significantly positive market reactions for both the tweeting and tweeted firms. However, this corporate social signaling is not without costs: tweeting firms experience negative market reactions when the firms they have tweeted about subsequently release negative news. These findings highlight social media's social dimension beyond its well-studied disclosure and dissemination roles.