Can Firms Now Act as Their Own Information Intermediaries? The Role of Direct-Access Information Technology in Disseminating Firm News
Recent research indicates that press-based dissemination of firm-initiated information plays a critical role in the effectiveness of the disclosure (Bushee et al., 2010; Soltes, 2010). However, traditional information intermediaries, such as the press, face constraints on the amount of news they can disseminate to investors. This paper examines whether firms can complement traditional dissemination channels by using new information technology that provides firms direct access to a broad set of investors on a real-time basis. Using a sample of technology firms with active Twitter accounts, we find that postings (tweets) increase around firm-initiated news events. This increase is primarily driven by tweets containing hyperlinks, which is consistent with firms using this innovative technology to disseminate firm news. We also find that greater tweeting during news event windows is associated with lower bid-ask spreads and greater depths. These relations are stronger for tweets with hyperlinks. We also find our results are more pronounced for firms with lower visibility—that is, firms that are smaller, have lower analyst coverage and have fewer shareholders. These findings suggest that managers use this new direct-access information technology to reduce information asymmetry, particularly for those firms that are arguably most in need.
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