Social Media and Firm Equity Value

  • Authors:

  • Xueming Luo;Jie Zhang;Wenjing Duan

  • Affiliations:

  • College of Business, University of Texas at Arlington, Arlington, Texas 76019/ and Fudan University, Shanghai, China 200433;College of Business, University of Texas at Arlington, Arlington, Texas 76019;School of Business, George Washington University, Washington, DC 20037

  • Venue:
  • Information Systems Research
  • Year:
  • 2013

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Abstract

Companies have increasingly advocated social media technologies to transform businesses and improve organizational performance. This study scrutinizes the predictive relationships between social media and firm equity value, the relative effects of social media metrics compared with conventional online behavioral metrics, and the dynamics of these relationships. The results derived from vector autoregressive models suggest that social media-based metrics Web blogs and consumer ratings are significant leading indicators of firm equity value. Interestingly, conventional online behavioral metrics Google searches and Web traffic are found to have a significant yet substantially weaker predictive relationship with firm equity value than social media metrics. We also find that social media has a faster predictive value, i.e., shorter “wear-in” time, than conventional online media. These findings are robust to a consistent set of volume-based measures total blog posts, rating volume, total page views, and search intensity. Collectively, this study proffers new insights for senior executives with respect to firm equity valuations and the transformative power of social media.