We live in an age where investors are overwhelmed by the information they get, so companies are constantly competing for the attention of investors. If done right, Twitter can act as a good platform for companies to boost their share price during earnings announcements.
Today, the majority of companies have a Twitter account, but far fewer executives of these companies have a Twitter account, let alone one they actively manage. Of course, there is Elon Musk, the world’s only CEO who announces strategic decisions to his company, the board of directors, and the world via Twitter (“Funding secured”, anyone?).
But if we ignore outliers like him, CEOs of companies typically aren’t very prominent on Twitter. The table below sows the result of a survey of the companies in the S&P 1500 from 2011 to 2018 (thus excluding Tesla and Elon Musk, which entered the S&P 500 only after 2018). About 70% of the companies had a Twitter account, but only 7% of the CEOs or CFOs of these companies had one.
Companies and executives with Twitter accounts
Source: Crowley et al. (2021)
That is a missed opportunity because the survey also looked at the impact tweets have on the share price of a company. To keep things simple, I will just focus on what happens when a company announces its earnings and there, I will focus only on those companies that follow the majority and publish their earnings outside of trading hours, either early in the morning or after the market closes.
The chart below shows that a company tweet has practically no influence on the share price on the day of the earnings announcement, no matter when it is sent. Meanwhile, if the CEO or the CFO of a company sends a tweet about the earnings announcement. If the executive tweets before trading begins, nothing much happens or the share price declines, mostly because executives cannot say anything substantial about earnings before they are officially published. But if the executive tweets about the earnings after they were announced or – even better – during trading, he/she can boost the share price substantially.
Impact of tweets on share price on day of earnings
Source: Crawley et al. (2021)
This effect, for those of you who wonder, is not driven by executives having more followers on Twitter than the company itself. It also exists for companies where the executive has fewer followers. Furthermore, the executives don’t necessarily have to convey new information in their tweets. The share price impact ironically is larger if the executives sends a tweet that is very similar or even identical to the tweet of the company. The trick is simply that companies are anonymous entities while CEOs and CFOs of companies are real persons. And we humans (that includes investors, believe it or not) are hardwired to trust people more than anonymous entities. And thus, we trust the tweets of a CEO more than the tweets of a company. And it is this trust element that makes investors positively biased towards a company and thus supports the share price.
Very cool study I'm gonna read. This would be a fun project for an intern.