Understanding information dissemination and acquisition in capital markets has been a primary objective in accounting and finance research for decades. Given that obtaining publicly available information in capital markets is not an effortless exercise, a body of studies examine how market participants collect information through various channels. The internet is now the most important platform for market participants to collect information. However, information from the internet may be uninformative or even misleading because the internet is an unregulated platform with a vast number of anonymous users. Given the importance of information reliability, two stock exchanges in China, Shanghai Stock Exchange and Shenzhen Stock Exchange, each initiated an official online interactive platform for investors to have direct conversations with listed firms and, thus, obtain firm-specific information directly.
These two platforms differ from common forms of social media in nontrivial ways. They were established and are operated and closely monitored by the two stock exchanges in China. Notably, the information that investors gather from the interactive platforms is generally more reliable than other information sources because firms take legal responsibility for their replies. In contrast, since conventional social media platforms are operated by large third-party companies with “light-touch” oversight, engagement through these social media may be more open to noise or inattention. In addition, firms’ participation in communicating with investors through the interactive platforms is ‘quasi-mandatory’. That is, although no sanctions are given to firms that fail to reply to investor posts, both stock exchanges closely monitor firms’ engagement in the interactive platforms and strongly encourage replies within two business days. Moreover, both stock exchanges grant ‘honours and awards’ to firms with excellent participation in the interactive platforms and the quality of firms’ replies is included in the exchange assessment of firms’ information disclosure. In contrast, while investors might ask questions on conventional social media about the information disseminated by a firm, the firm is not obligated to reply. Indeed, participating in general forms of social media is totally voluntary; that is, firms can choose when to communicate, which social media platforms to use, and what information to disseminate.
Given the unique features of the platforms, we expect that their emergence is important for investors to collect information. We empirically investigate three research questions. Firstly, we test whether investors collect firm-specific information through the interactive platforms around earnings announcement dates. Secondly, we examine the interaction role between posting questions for a firm and searching online in information acquisition. Lastly, we investigate the economic implications associated with information acquisition via posting questions on the platforms.
In a nutshell, our results reveal that posting volumes on the interactive platforms increase around earnings announcement dates, suggesting that investors acquire firm-specific information via the platforms. Furthermore, the positive relationship between posting volumes and earnings announcements is more pronounced for firms with smaller Baidu search volumes. This suggests a substitution relationship in collecting information between asking listed firms questions directly and searching online. Finally, our evidence suggests that questions posted around earnings announcements accelerate the price discovery of earnings and attenuate post-earnings announcement drift and stock price synchronicity.
Our study makes several contributions to the literature and has some implications for capital market participants. First, our study focuses on how investors use unique special purpose interactive platforms to acquire information, providing a demand-side story in the information communication between firms and investors, while prior studies on general social media platforms primarily focus on the supply side of firm-specific information. Second, since investors collect firm-specific information through the platforms, our results have implications for new proxies of investors’ information acquisition. Third, our study sheds meaningful light on the impact of new technologies on capital markets. Our study shows that providing special-purpose interactive platforms that allow, facilitate, and encourage investors to initiate communications with listed firms improves information transmission in capital markets. Indeed, this finding might have important implications for other capital markets, especially in emerging market settings that are characterized by large information asymmetry between listed firms and diffuse investor bases.
This paper is forthcoming in the European Accounting Review – https://doi.org/10.1080/09638180.2022.2118147