The Emergence of "Social Executives" and its Consequences for Financial Markets

Abstract:

We document the emergence of “social executives,” top executives that directly, personally, and in real-time connect with investors through social media, and we study the consequences of this development for financial markets. We contend that the emergence of social executive allows retail investors to obtain value-relevant information to which they previously had no access. Social executives also grab investor attention. Building on the finance market microstructure literature, we argue that both democratization of access to value-relevant information and heightened investor attention help widen a firm’s investor base and improve stock market liquidity. Using data on the personal Twitter account activity of the CEOs and CFOs of the largest publicly traded companies in the US, we find evidence consistent with our argument. Utilizing the Securities and Exchange Commission’s recent embracement of social media as a plausibly exogenous shock, we also provide evidence for a causal link. We conclude that the emergence of social executives has important consequences for financial markets.

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