Understanding the relationship between social media activity and earnings management for organisations

Abstract

In 2013, the US Securities and Exchange Commission (SEC) announced that firms may use social media to announce key financial information in compliance with Regulation Fair Disclosure (SEC, 2013). Social media sites offer firms the opportunity to communicate with investors on a frequent and real-time basis (Blankespoor, Miller, & White, 2014). The SEC acknowledges the importance of social media and the internet as valuable tools for investors that are used to research on particular stocks, look up background information of investment advisors, receive real-time news, and discuss the market with others (SEC, 2015). The circulation of information on social media by firms has several benefits; it results in the reduction of dissemination costs for the organisations, increases the speed and flexibility of dissemination and helps to reduce the information acquisition costs for investors (Jung, Naughton, Tahoun, & Wang, 2017). Thus, it is evident from the above arguments that social media is being increasingly used as an important information channel in the finance domain.