Tweet Trust: Why Having CEOs on Twitter Aids Investor Perception

October 13, 2015

[rerik tham/corbis/gustav dejert/ikon images]
[rerik tham/corbis/gustav dejert/ikon images]

New research reveals that it pays to have the CEO on Twitter. According to a study from the University of Illinois, a tweeting chief executive shields a company’s stock from taking a hit when the company discloses bad news.

The findings show that the CEO’s own voice buoys the stock price by boosting trust and credibility. However, the statement has to be on Twitter: Announcements via websites don’t work, and neither do generic company Twitter accounts.

The study concluded that upon receiving negative news from the CEO on Twitter, 46 percent of investors perceived the poor financial results to be a one-time event, compared with those who learned of the information from the CEO via a website (8 percent), through investor relations on Twitter (12 percent) or from investor relations through a website (9 percent).

However, few companies have their top leadership tweet, as CEOs remain reluctant to disclose information from a personal social media account. In 2014, only 5 percent of Fortune 500 CEOs had an active Twitter profile, up from 2 percent in 2012.

One of the researchers, W. Brooke Elliott, an associate professor of accounting at the University of Illinois, spoke more in-depth about the study with The Strategist:

What made you want to research the topic of CEO communications?

Social media is an increasingly important tool companies use to communicate with investors. However, despite 284 million people using Twitter, CEOs remain reluctant.

In response to a 2012 survey, 82 percent of respondents indicated they were more likely to trust a CEO who engages with social media. Based on our knowledge of psychology theory, we thought that if CEOs were willing to sign up for personal accounts and tweet out information to investors, then it could lead investors to trust CEOs more because of the personal interaction. So we were interested to see whether this would play out and allow us to document some of the benefits of CEOs being on social media.

What are some of the highlights and conclusions from the study? What are some of the implications?   

Trust affects investment decisions and can easily be destroyed if a firm surprises investors by reporting negative news. A CEO who communicates with investors via Twitter, however, can reduce this effect.

We find that after negative financial news, investors following a firm’s CEO on Twitter are more willing to invest than those following the firm’s investor relations on Twitter or investors who get their news from the firm’s website. The trust investors develop from following a CEO on Twitter makes them more likely to view the negative news as a one-time event.

What is it about a personal Twitter account that creates inherent trust for an investor, rather than a website or investor relations Twitter account?

Social media creates the impression of a relationship between CEOs and investors like never before. With every tweet comes a photo of the CEO; making these frequent updates feels like a personal connection. Investors quickly develop an enduring relational trust in the CEO, which was previously only possible in face-to-face and long-term relationships. That same personal connection is not made when the tweet comes from either a website or IR Twitter account.

CEOs are often the face of a company. Based on your findings, how would you counsel them to best report their company’s negative news online?

Many CEOs are reluctant to adopt Twitter — it takes too much time and off-the-cuff tweets gone viral could cause legal problems.

Our research suggests an easy way for CEOs to get up and running on Twitter. CEOs can start by simply tweeting links to press releases and following up with more tweets, quoting highlights from the press release. This strategy only takes a few minutes every quarter and minimizes legal issues since the firm has already approved the tweeted information.

The potential bonus is significant — investors could develop enduring trust in the CEO, which could minimize negative responses to bad news.

Companies That Respond to Complaints on Social Media May Invite Future Grievances, Study Finds

While responding to complaints on social media can help develop a rapport with customers, it can also trigger new complaints, according to a study from professors at the University of Maryland, Carnegie Mellon University and Cheung Kong Graduate School of Business, in China.

The study, which was published in Marketing Science, a journal of the Institute for Operations Research and the Management Sciences (INFORMS), explains the side effect of customers coming to expect help and giving them more of a reason to speak up in the future.

“People complain on Twitter not just to vent their frustration,” said one researcher, Liye Ma. “They do that also in the hope of getting the company’s attention. Once they know the company is paying attention, they are more ready to complain the next time around.”

The researchers looked at a major telecommunications service provider’s history of received feedback. By comparing this feedback to the company’s replies, researchers were able to determine how the relationship between the customer and corporation evolved, and if the consumers ended up complimenting the company’s response or complaining further.

Nevertheless, the study ultimately determined that addressing complaints is still worthwhile, as the improved customer relationship outweighs the potential side effect of instigating future grievances.

“The social media environment is in a sense self-stabilizing,” said another researcher, Baohong Sun. “Companies should not overreact to negative comments.”

While what people say on social media reflects their true feelings to an extent, corporations must also remember that past responses to complaints can affect how consumers respond in the future. — R.R.

Renée Ruggeri
Renée Ruggeri is the editorial assistant for PRSA’s publications. Originally from Warwick, N.Y., she has bachelor’s degrees in English and journalism from the University of Richmond and a certificate in publishing from New York University.


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