The Effect of Twitter Dissemination on Cost of Equity: Evidence from Financial and Carbon Information

Abstract

The recent development of communication technology through social media, more particularly Twitter, has changed the way that firms communicate with investors. This channel has created an opportunity for firms to disseminate their information to investors on a real-time basis directly. This thesis aims to investigate whether firms can influence their cost of equity (COE) by broadly disseminating their information over Twitter. Employing a sample of non-financial firms with a Twitter account, listed on the US NASDAQ stock exchange over the period 2009-2015, the thesis comprises several objectives. The first objective investigates the effect of firms’ dissemination of financial information (iDisc) over Twitter on the cost of equity. The results find evidence that firms’ dissemination of financial information over Twitter (iDisc) significantly reduces the cost of equity. These results are pronounced for less visible firms that are relatively small in size, have a low analyst following and a small number of investors. Highly visible firms are less likely to benefit from iDisc influencing their cost of equity as other communication channels may have widely disseminated their financial information. Additionally, further tests are employed to investigate the influence of news magnitude on the examined relationship. The findings of the additional tests show a significant negative association between iDisc and cost of equity. The second objective is to investigate whether firms’ dissemination of carbon-related information over Twitter, referred to as iCarbon, influences their cost of equity. The study finds that iCarbon is significantly and negatively associated with COE. Also, additional tests are applied to investigate whether Bloomberg's environmental (ENV) and environmental, social and governance (ESG) disclosure scores influence the relationship between iCarbon and cost of equity. The findings show a consistent negative association between iCarbon and cost of equity after determining the effect of ENV and ESG score. The findings of the thesis encourage managers to consider the benefits of directly disseminating financial and carbon information to stakeholders and potential investors over Twitter to reduce firm equity financing.