The U.S. Market Reaction to Regulation of Social Media Disclosures

This paper examines the U.S. stock market reaction to events leading up to the SEC's decision to regulate (and allow) the use of social media for firm disclosures. By using an event methodology, we compare the market reaction for firms that use Twitter extensively with a set of control firms. Measures include size-adjusted cumulative abnormal returns (CARs), bid-ask spread, analyst forecast revision and dispersion as proxies for market reaction. Results show that firms actively using Twitter for financial disclosures suffered negative CARs after the final event when the SEC released its final guidance on social media disclosures.