Do Social Firms Catch the Drift? Social Media and Earnings News

(with Vineet Bhagwat)

This paper examines whether stock price reactions to news differ based on firms' social media use. We investigate post-earnings announcement drift (PEAD) and find that Twitter-active firms have significantly stronger positive drift (and thus PEAD) following extreme positive earnings news, but also experience positive drift following negative news (and thus PEAD is reversed). Positive drift following negative news, which is consistent with either initial overreaction or buying during the post-announcement window, is stronger when firms tweet more often, have a larger Twitter audience, and more often tweet about their impending or just-announced earnings. These results obtain even after controlling for firm characteristics and industry fixed effects.

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