Companies using social media to speak to their shareholders can easily be caught out by the instant and uncontrolled nature of online information flows, according to Australian research.
Nearly three-quarters of Australian listed companies use or are planning to use social media.
“For public companies social media can be a significant challenge,” says professor Ellie Chapple from QUT Business School who is researching the impact of social media on corporate reporting.
She says public companies need to find a balance between financial reporting through social media channels and engaging with investors.
“On one hand they should welcome a new way to engage current shareholders and appeal to potential shareholders. But on the other, they need to obey corporate disclosure requirements,” she says
“In Australia we have some of the strictest corporate reporting regulations in the world but there is no clear guidance around financial reporting on social media.”
Australian companies are required to immediately inform the ASX of information that could affect its share price, and publicly respond to rumours from external sources.
But Professor Chapple says the “instantaneous and uncontrolled” information on social media could catch companies out.
Reports of a 2012 takeover bid for David Jones, spread on social media, sent the share price higher before it was revealed as a hoax.
And in the US, a report, which turned out to be fake, suggesting that Twitter was in takeover discussions briefly added $1.3 billion to the company’s value.
ASX-listed companies are now required to monitor social media for potential leaks of market sensitive information, according to current continuous disclosure rules.
“Twitter can be particularly dangerous because you only have 140 characters,” says professor Chapple.
“Companies should remember to inform the ASX before tweeting financial information and make sure they include a link to the full statement.
“There is also a temptation on social media to cherry-pick good news but companies must take a balanced approach to ensure they are complying with continuous disclosure requirements.”
However, she says the advantages outweighed the risks for public companies using social media, provided appropriate guidelines are in place.
“This includes being proactive in monitoring third party accounts and discussion to respond to if needed, and establishing rules for management using their personal accounts to avoid inadvertently releasing material information publicly,” she says.
David Coe, managing editor of investor social media agency Investor Torque, says the way to find balance is to use social media to amplify ASX announcements.
Unlike the US, where companies are allowed to release material announcements on social media, ASX rules require all material announcements to be made on the ASX first.
“Smart Aussie companies then use social media to get those announcements to thousands more investors, brokers, journalists, fund managers, analysts and wealth advisers,” he says
“Introducing buying tension helps increase market liquidity and tighten bid-ask spreads. That’s the experience of our clients, which is supported by research from Stanford University.
“Social media also helps companies reach the clients of more than one broker during capital raises and mobilise shareholders in a crisis.”
A study on social media’s effects on ASX company prices by Maria Prokofieva, a senior lecture in finance at Victoria University in Melbourne, shows social media is a powerful tool for small companies reach retail investors, who lack the time and resources to track every company and every announcement.
She analysed 3,516 corporate announcements from Australian listed companies between 2008 and 2013.
“Companies that tweet corporate news and financial results can significantly affect stock prices even if the company’s tweets contain no new information beyond what is already posted through the stock exchange platform,” she says.
“Companies that put extra effort to reach their investors are rewarded; they are able to grab the investors’ attention and lead them closer to the decision to invest. In line with this, there has been a recent influx in the business use of social media in Australia.”
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