Social media visibility, investor diversity and trading consensus

Purpose - The purpose of this paper is to investigate the effects of Facebook users' responses to corporate Facebook posts on investor diversity and trading consensus. Design/methodology/approach - The authors collect publicly available data on corporate Facebook posts and user responses to such posts. They use the OLS regression framework to analyze the effects of such Facebook activities on institutional ownership percentage and trading consensus among investors. Findings - The authors find that Facebook users' responses to corporate Facebook posts reduce large institutional investors' ownership. Their interpretation for this finding is that such Facebook activities increase the visibility of the companies across a more diverse group of investors. This increased visibility especially makes information more accessible to smaller investors so that they are attracted to invest more in these companies. They also find that Facebook activities increase the buy-sell consensus among investors, indicating that the information disseminated through social media reduces the disagreements among investors. Research limitations/implications - This paper examines the effects of user reactions to all kinds of corporate Facebook posts without separately identifying the types of posts such as advertising, financial information and corporate news. Future research may try to identify the differential effects of specific types of posts and reactions on investor diversity. Practical implications - The results suggest that social media has become a new and effective supplement to traditional disclosure channels in making information available to all investors in the capital market. Originality/value - This paper is among the first to document the effects of corporate disclosures on social media in changing investor composition and reducing the information gap among investors.