In the past decade, social networking has changed the landscape of information dissemination. The rapid diffusion of social media services such as Facebook and Twitter is unprecedented and offers immense possibilities for corporations to communicate with, and engage core stakeholders in, various business decisions. In this study, we investigate whether social media play any role as a source of information for financial analysts. We specifically focus on information revealed on the official Facebook pages of S&P 500 firms. We define information content on a Facebook page as the total number of posts by the corporations and the comments, likes and shares (CLS) by Facebook users. By using the data of 4,929 quarterly forecasts from 2008 to 2012, we find that analyst forecast errors decrease significantly with the amount of information content on Facebook. This finding is robust, using the information content on Facebook pages for various time windows before the forecast dates. We further find that the information that helps analysts with forecasting is generated from public reaction, i.e., the CLS provided by the public and subscribers, but not from the number of posts provided by the corporations. Our findings confirm the increasing role of social media as a means of information dissemination, and the evidence of the efficient use of that information by sophisticated users such as financial analysts.
Malik, M., Hasan, R., & Amin, A.S. (2016). Social media information and analyst forecasts. Financial Management Association conference paper.