The Feedback Effect of Social Media on Corporate Investment: Evidence from Twitter Presence and Follower Engagement

Abstract

Social media presence and follower engagement have a feedback effect on corporate investment through the learning channel and the disciplining effect. Utilizing 366 million posts for 2,065 firms on Twitter, we find that investment is less sensitive to stock prices for firms with Twitter presence and with more engaged followers. Managers forecast sales more accurately with Twitter presence and revise forecasts upwards (downwards) in response to improving (deteriorating) follower engagement, suggesting that managers learn new insights from social media. Interestingly, we find a greater responsiveness of investment to declining opportunities. The asymmetric effect suggests that social media disciplines managers.