Social Media and Firm Equity Value

Information Systems Research, March 2013, pp. 146-163.

45 Pages Posted: 15 Oct 2012 Last revised: 20 Feb 2016

See all articles by Xueming Luo

Xueming Luo

affiliation not provided to SSRN

Jie (Jennifer) Zhang

University of Texas at Arlington

Wenjing Duan

George Washington University - School of Business

Date Written: March 2013

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.

Keywords: Social Media, Word of Mouth, Online Reviews, Web Blogs, Vector Autoregression, Firm Equity Value, Stock Market Performance

JEL Classification: C12, C32, D46, L86, M31

Suggested Citation

Luo, Xueming and Zhang, Jie (Jennifer) and Duan, Wenjing, Social Media and Firm Equity Value (March 2013). Information Systems Research, March 2013, pp. 146-163., Available at SSRN: https://ssrn.com/abstract=2162167 or http://dx.doi.org/10.2139/ssrn.2162167

Xueming Luo

affiliation not provided to SSRN ( email )

Jie (Jennifer) Zhang (Contact Author)

University of Texas at Arlington ( email )

701 S. West St.
Arlington, TX 76019
United States

Wenjing Duan

George Washington University - School of Business ( email )

2121 I Street NW
Washington, DC 20052
United States

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