Negative News and Investor Trust: The Role of $Firm and #CEO Twitter Use

Abstract

We examine how CEOs can facilitate the development of investor trust that helps mitigate the effects of negative information. Results from an experiment show that investors trust the CEO more and are more willing to invest in the firm when the CEO communicates firm news followed by a negative earnings surprise through a personal Twitter account than when the news and surprise comes from the CEO via a website or from the firm‟s Investor Relations Twitter account or website. A follow-up experiment shows that repeating the negative news does not incrementally affect investors who received the news from the CEO‟s Twitter account, but does further negatively impact investors who received the news via other disclosure mediums, especially those who received the news via the Investor Relations Twitter account. Our results have implications for firms and executives considering the costs and benefits of communicating with investors via Twitter