Financial Analysis on Social Media and Disclosure Processing Costs: Evidence from Seeking Alpha

Less-informed investors face greater costs of processing earnings news into actionable information. Our findings suggest financial analysis on social media reduces less-informed investors’ disclosure processing costs. We document an attenuated spike in earnings announcement (EA) information asymmetr...

Full description

Saved in:
Bibliographic Details
Published in:The Accounting review 2024-09, Vol.99 (5), p.223-246
Main Authors: Gomez, Enrique A., Heflin, Frank, Moon, James R., Warren, James D.
Format: Article
Language:English
Subjects:
Asymmetric information
Earnings
Earnings announcements
Financial analysis
Financial disclosure
Financial performance
Investor behavior
Investors
Social media
Social networks
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Less-informed investors face greater costs of processing earnings news into actionable information. Our findings suggest financial analysis on social media reduces less-informed investors’ disclosure processing costs. We document an attenuated spike in earnings announcement (EA) information asymmetry for quarters containing more financial analysis on social media in the weeks prior to the EA. Cross-sectional evidence suggests this finding is stronger when coverage from traditional intermediaries is lower, for financial analyses written by more credible authors, and for financial analyses that are more likely relevant to evaluating the EA. Further evidence suggests retail trades, but not institutional trades, at EAs are significantly more profitable in quarters with greater financial analysis on social media, consistent with financial analysis on social media benefitting traders who are otherwise less-informed. Overall, our evidence suggests that financial analysis on social media plays an important role in aiding less-informed investors by helping them better process EA news. JEL Classifications: G14; M41.
ISSN:0001-4826
1558-7967
DOI:10.2308/TAR-2018-0659