Social referral programs for freemium platforms
| Authors | Belo, Li |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We examine how freemium platforms can design social referral programs to encourage growth and engagement without sacrificing revenue. On the one hand, social referral programs generate new referrals from users who would not have paid for the premium features. On the other hand, they also attract new referrals from users who would have paid but prefer to invite others, resulting in more referrals but fewer paying users. We use data from a large-scale randomized field experiment in an online dating platform to assess the effects of adding referrals programs to freemium platforms and changing the referral requirements on users' behavior, namely, on their decisions to invite, pay, and engage with the platform. We find that introducing referral programs in freemium platforms can significantly contribute to increasing the number of referrals at the expense of revenue. Platforms can avoid the loss in revenue by reserving some premium features exclusively for paying users. We also find that increasing referral requirements in social referral programs can work as a double-edged sword. Increasing the referral threshold results in more referrals and higher total revenue. Yet these benefits appear to come at a cost. Users become less engaged, decreasing the value of the platform for all users. We explore two mechanisms that help to explain the differences in users' social engagement. Finally, and contrary to prior findings, we find that the quality of the referrals is not affected by the referral requirements. We discuss the theoretical and practical implications of our research. |
| Keywords | Field experiment, freemium business models, platform strategy, referral program |
| URL | https://pubsonline.informs.org/doi/full/10.1287/mnsc.2022.4301 |
| Tags | Archival Empirical | Consumer Decisions | Experimental / Survey-Based Empirical | Manager / Firm Behavior |
Expression modalities: How speaking versus writing shapes word of mouth
| Authors | Berger, Rocklage, Packard |
| Journal | Journal of Consumer Research |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Consumers often communicate their attitudes and opinions with others, and such word of mouth has an important impact on what others think, buy, and do. But might the way consumers communicate their attitudes (i.e., through speaking or writing) shape the attitudes they express? And, as a result, the impact of what they share? While a great deal of research has begun to examine drivers of word of mouth, there has been less attention to how communication modality might shape sharing. Six studies, conducted in the laboratory and field, demonstrate that compared to speaking, writing leads consumers to express less emotional attitudes. The effect is driven by deliberation. Writing offers more time to deliberate about what to say, which reduces emotionality. The studies also demonstrate a downstream consequence of this effect: by shaping the attitudes expressed, the modality consumers communicate through can influence the impact of their communication. This work sheds light on word of mouth, effects of communication modality, and the role of language in communication. |
| Keywords | Word of mouth, communication modality, emotion, speaking, writing, automated text analysis |
| URL | https://academic.oup.com/jcr/article-abstract/49/3/389/6483086?redirectedFrom=fulltext |
| Tags | Archival Empirical | Consumer Decisions | Experimental / Survey-Based Empirical | Media and Textual Analysis |
Understanding investor interaction with firm information: A discussion of Lee and Zhong (2022)
| Authors | Blankespoor |
| Journal | Journal of Accounting and Economics |
| Year | 2022 |
| Type | Published Paper | Literature Review Paper |
| Abstract | Investors are central to the incorporation of firm information in capital markets, yet it is challenging to observe the particular information they use and struggle with. Lee and Zhong (2022) use online investor interactions with Chinese public firms to document evidence that investors face significant processing costs. They find that when investor interactions occur, capital markets behave as if the information environment has improved, with increased trading activity, liquidity, and timely pricing of the quarter's earnings in returns. My discussion highlights the contributions of Lee and Zhong's findings to the processing cost, retail investor, and investor interactions literatures. I also describe empirical challenges faced by this and similar studies. I encourage using the details of interactions to disentangle the nature of processing costs and to increase support for causal conclusions more generally. Finally, I note several topics related to investor inter- action that would benefit from further research. |
| Keywords | Disclosure, investor interaction, information processing costs, technology |
| URL | https://www.sciencedirect.com/science/article/pii/S0165410122000465 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency |
Meet the press: Survey evidence on financial journalists as information intermediaries
| Authors | Call, Emett, Maksymov, Sharp |
| Journal | Journal of Accounting and Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We survey 462 financial journalists and conduct 18 interviews to obtain insights on the inputs to their reporting, the incentives they face, and the factors that influence their coverage decisions. We report many findings relevant to the accounting literature and identify multiple avenues for future research. For example, financial journalists say the likelihood they write about a specific company or CEO increases when the company is controversial or the CEO has a colorful personality, suggesting journalists gravitate toward provocative topics. We also find that financial journalists routinely use company-issued disclosures and private phone calls with company management when developing articles, and that they believe they are evaluated primarily on the accuracy, timeliness, and depth of their articles. Journalists also believe monitoring companies to hold them accountable is one of financial journalism's most important objectives, but they often face negative consequences for writing articles that portray companies in an unfavorable light. |
| Keywords | Business press, financial journalists, media Information, intermediaries, social media, financial analysts |
| URL | https://doi.org/10.1016/j.jacceco.2021.101455 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Manager / Firm Behavior | Media and Textual Analysis | Social Network Structure |
It's a small world: The importance of social connections with auditors to mutual fund managers' portfolio decisions
| Authors | Chen, Huang, Li, Pittman |
| Journal | Journal of Accounting Research |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We find that mutual funds whose managers are socially connected with firm auditors hold more shares of these firms and generate superior portfolio returns. Cross-sectional results reveal that the relation between social connections and mutual fund stockholdings is more pronounced: when the social connections are stronger, when the auditor is in a better position or has stronger incentives to acquire private information, when the fund manager exercises more power, for small audit firms, for auditors in areas with poor investor protection, and for public firms with greater business opacity or private information. Other results are consistent with fund managers electing to schedule their corporate site visits to coincide with the fieldwork of their connected auditors, as would be expected if fund managers time their visits to meet with these auditors to facilitate information transfer. Additionally, we observe associations between fund trading prior to earnings surprises and audit opinions, and the presence of social connections between fund managers and firm auditors. Finally, we show that mutual funds and firms in which they invest tend to appoint connected auditors and pay them higher fees. Collectively, we document empirical patterns that would arise if socially connected auditors and mutual fund managers share information. |
| URL | https://onlinelibrary.wiley.com/doi/full/10.1111/1475-679X.12395 |
| Tags | Archival Empirical | Investment Decisions (Institutional) |
Listening in on investors' thoughts and conversations
| Authors | Chen, Hwang |
| Journal | Journal of Financial Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | A large literature in neuroscience and social psychology shows that humans are wired to be meticulous about how they are perceived by others. In this paper, we propose that impression management considerations can also end up guiding the content that investors transmit via word of mouth and inadvertently lead to the propagation of noise. We analyze server log data from one of the largest investment-related websites in the United States. Consistent with our proposition, we find that investors more frequently share articles that are more suitable for impression management despite such articles less accurately predicting returns. Additional analyses suggest that high levels of sharing can lead to overpricing. |
| Keywords | Social interactions, social transmission bias, asset prices |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0304405X21003810?via%3Dihub |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Transmission Biases |
The ex ante likelihood of bubbles
| Authors | Chinco |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | The limits of arbitrage explain how a speculative bubble is sustained; they do not explain how likely one is to occur. To do that, you need a theory about the thing that sporadically causes arbitrageur constraints to bind. I propose a first such theory, which is based on social interactions between speculators. The theory says that bubbles should be more likely in assets where increases in past returns make excited-speculators relatively more persuasive to their peers. I empirically verify this ex ante prediction about bubble likelihoods and show that it is robust to some ex post disagreement about bubble definitions. |
| Keywords | Limits to arbitrage, speculative bubbles, social interactions |
| URL | https://pubsonline.informs.org/doi/10.1287/mnsc.2022.4351 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Propagation of Noise / Undesirable Outcomes | Theory |
Honesty in the digital age
| Authors | Cohn, Gesche, Marechal |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Modern communication technologies enable efficient exchange of information but often sacrifice direct human interaction inherent in more traditional forms of communication. This raises the question of whether the lack of personal interaction induces individuals to exploit informational asymmetries. We conducted two experiments with a total of 848 subjects to examine how human versus machine interaction influences cheating for financial gain. We find that individuals cheat about three times more when they interact with a machine rather than a person, regardless of whether the machine is equipped with human features. When interacting with a human, individuals are particularly reluctant to report unlikely and therefore, suspicious outcomes, which is consistent with social image concerns. The second experiment shows that dishonest individuals prefer to interact with a machine when facing an opportunity to cheat. Our results suggest that human presence is key to mitigating dishonest behavior and that self-selection into communication channels can be used to screen for dishonest people. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2021.3985 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical |
Echo chambers
| Authors | Cookson, Engelberg, Mullins |
| Journal | The Review of Financial Studies |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We find evidence of selective exposure to confirmatory information among 400,000 users on the investor social network StockTwits. Self-described bulls are five times more likely to follow a user with a bullish view of the same stock than are self-described bears. Consequently, bulls see 62 more bullish messages and 24 fewer bearish messages than bears do over the same 50-day period. These âecho chambersâ exist even among professional investors and are strongest for investors who trade on their beliefs. Finally, beliefs formed in echo chambers are associated with lower ex post returns, more siloing of information, and more trading volume. |
| URL | https://academic.oup.com/rfs/article-abstract/36/2/450/6670640 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases |
Does individualism matter for hedge funds? A cross-country examination
| Authors | Dai, Nahata, Brauner |
| Journal | Journal of Corporate Finance |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We examine how individualism, a cultural attribute that emphasizes autonomy, ability, and self-belief, affects hedge funds (HFs). Using Hofstede's framework, we show HFs located in individualistic (IDV) cultures structure their contracts with more performance-driven incentives, take greater risk, and herd less. Individualism also influences risk-shifting behavior: after initial underperformance, HFs increase risk-taking in high IDV cultures. Yet, HFs do not outperform in individualistic countries and draw lower Sharpe ratios, which highlights the link between individualism and overconfidence/over-optimism. Interestingly, HFs' survival is less sensitive to performance in individualistic cultures, again consistent with greater autonomy and opportunities in these countries. |
| Keywords | Culture, individualism, hedge fund contracts, risk-taking, survival |
| URL | https://doi.org/10.1016/j.jcorpfin.2021.102155 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior |
Social media analysts and sell-side analyst research
| Authors | Drake, Moon, Twedt, Warren |
| Journal | Review of Accounting Studies |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We examine how research posted by "social media analysts" (SMAs) - individuals posting equity research online via social media investment platforms - is related to research subsequently produced by professional sell-side equity analysts. Using data from Seeking Alpha, we find that the market reaction to sell-side analyst research is substantially reduced when the analyst research is preceded by the report of an SMA, and that this is particularly true of sell-side analysts' earnings forecasts. We further find that this effect is more pronounced when SMA reports contain more decision-useful language, are produced by SMAs with greater expertise, and relate to firms with greater retail investor ownership. We also provide evidence that the attenuated response to sell-side research is most likely explained by SMA research preempting information in sell-side research and that analysts respond to SMA preemption with bolder and more disaggregated forecasts. Collectively, our results suggest that equity research posted online by SMAs provides investors with information that is similar to but arrives earlier than sell-side equity research, and speak to the connected and evolving roles of information intermediaries in capital markets. |
| Keywords | Social media analyst, sell-side analyst, information intermediaries, equity research |
| URL | https://link.springer.com/article/10.1007/s11142-021-09645-1 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
Democracy and the pricing of initial public offerings around the world
| Authors | Duong, Goyal, Kallinterakis, Veeraraghavan |
| Journal | Journal of Financial Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We find a negative relation between democracy and initial public offering (IPO) underpricing for a sample of 23,050 IPOs across 45 countries. The effect of democracy on underpricing is weaker for IPOs audited by Big 4 auditing firms, backed by venture capital firms, and with better disclosure specificity of use of proceeds. Democracy exerts a larger influence on underpricing for firms with higher agency problems, in countries with weaker institutional quality or shareholder protection, and during periods of high investor sentiment or economic policy uncertainty. Overall, our results highlight the importance of democracy in reducing IPO underpricing around the world. |
| Keywords | Democracy, IPO underpricing, information asymmetry, corporate governance |
| URL | https://doi.org/10.1016/j.jfineco.2021.07.010 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior |
Using social network activity data to identify and target job seekers
| Authors | Ebbes, Netzer |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | An important challenge for many firms is to identify the life transitions of its customers, such as job searching, expecting a child, or purchasing a home. Inferring such transitions, which are generally unobserved to the firm, can offer the firms opportunities to be more relevant to their customers. In this paper, we demonstrate how a social network platform can leverage its longitudinal user data to identify which of its users are likely to be job seekers. Identifying job seekers is at the heart of the business model of professional social network platforms. Our proposed approach builds on the hidden Markov model (HMM) framework to recover the latent state of job search from noisy signals obtained from social network activity data. Specifically, we use the latent states of the HMM to fuse cross-sectional survey responses to a job-seeking status question with longitudinal user activity data, resulting in a partially HMM. Thus, in some time periods, and for some users, we observe a direct measure of the true job-seeking status. We demonstrate that the proposed model can predict not only which users are likely to be job seeking at any point in time but also what activities on the platform are associated with job search and how long the users have been job seeking. Furthermore, we find that targeting job seekers based on our proposed approach can lead to a 29% increase in profits of a targeting campaign relative to the approach that was used by the social network platform. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2021.3995 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Manager / Firm Behavior | Social Network Structure |
The effects of online review platforms on restaurant revenue, consumer learning, and welfare
| Authors | Fang |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | This paper quantifies the effects of online review platforms on restaurant revenue and consumer welfare. Using a novel data set containing revenues and information from major online review platforms in Texas, I show that online review platforms help consumers learn about restaurant quality more quickly. The effects on learning show up in restaurant revenues. Specifically, doubling the review activity increases the revenue of a high-quality independent restaurant by 5%-19% and decreases that of a low-quality restaurant by a similar amount. These effects vary widely across restaurants' locations. Restaurants around highway exits are affected twice as much as those in nonhighway areas, implying that reviews are more useful to travelers and tourists than locals. The effects also decline as restaurants age, consistent with the diminishing value of information in learning. In contrast, chain restaurants are affected to a much lesser degree than independent restaurants. Building on this evidence, I develop a structural demand model with aggregate social learning. Counterfactual analyses indicate that online review platforms raise consumer welfare much more for tourists than for locals. By encouraging consumers to eat out more often at high-quality independent restaurants, online review platforms increased the total industry revenue by 3.0% over the period from 2011-2015. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2021.4279 |
| Tags | Archival Empirical | Consumer Decisions |
The democratization of investment research and the informativeness of retail investor trading
| Authors | Farrell, Green, Jame, Markov |
| Journal | Journal of Financial Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We study the effects of social media on the informativeness of retail trading. Our identification strategy exploits the editorial delay between report submission and publication on Seeking Alpha, a popular crowdsourced investment research platform. We find the ability of retail order imbalances to predict the cross-section of stock returns and cash-flow news increases sharply in the intraday post-publication window relative to the pre-publication window. The findings are robust to controlling for report tone and stronger for reports authored by more capable contributors. The evidence suggests that recent technology-enabled innovations in how individuals share information help retail investors become better informed. |
| Keywords | Investment research, Seeking alpha, retail investors, informed trading |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0304405X21004050 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Social Network Structure |
Reporting peers' wrongdoing: Experimental evidence on the effect of financial incentives on morally controversial behavior
| Authors | Fiorin |
| Journal | Journal of the European Economic Association |
| Year | 2022 |
| Type | Published Paper |
| Abstract | I show that moral concerns can reverse the effect of financial incentives. I analyze a morally ambiguous behavior: reporting peers' wrongdoing. Agents' peers often know more about their behavior than principals do. However, denouncing a peer to an authority is morally controversial, as it might prevent future misconduct but also harm the peer. Authorities often encourage denunciations through financial rewards; yet these incentives can backfire if peers perceive being paid for harming others as morally unacceptable. I run a field experiment with 2,040 employees of the Afghan Ministry of Education, who are asked to confidentially report on their colleagues' attendance. I use a two-by-two design, randomizing whether or not reporting absence carries a monetary incentive as well as the perceived consequentiality of the reports. In the consequential treatment arm, where employees are given examples of the penalties that might be imposed on absentees, 15% of participants choose to denounce their peers when reports are not incentivized. Remarkably, in this consequential group, rewards backfire: Only 10% of employees report when denunciations are incentivized. In the non-consequential group, where participants are guaranteed that their reports will not be forwarded to the government, only 6% of employees denounce absence without rewards. However, when moral concerns of harming others are limited through the guarantee of non-consequentiality, rewards do not backfire: The incentivized reporting rate is 12%. My results suggest that employees report because they share the government's goal of reducing absence but are morally averse to being paid for harming their peers. |
| Keywords | Absence, financial incentives, morality, peer reporting, whistleblowing |
| URL | https://kingcenter.stanford.edu/sites/g/files/sbiybj16611/files/media/file/reporting_wrongdoing.pdf |
| Tags | Experimental / Survey-Based Empirical |
Impact of social interactions on duopoly competition with quality considerations
| Authors | Geng, Guo, Xiao |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We study the impacts of social interactions on competing firms' quality differentiation, pricing decisions, and profit performance. Two forms of social interactions are identified and analyzed: (1) market-expansion effect (MEE)-the total market expands as a result of both firms' sales-and (2) value-enhancement effect (VEE)-a consumer gains additional utility of purchasing from one firm based on this firm's previous and/or current sales volume. We consider a two-stage duopoly competition framework, in which both firms select quality levels in the first stage simultaneously and engage in a two-period price competition in the second stage. In the main model, we assume that each firm sets a single price and commits to it across two selling periods. We find that both forms of social interactions tend to lower prices and intensify price competition for given quality levels. However, MEE weakens the product-quality differentiation and is benign to both high-quality and low-quality firms. It also benefits consumers and improves social welfare. By contrast, VEE enlarges the quality differentiation and only benefits the high-quality firm, but is particularly malignant to the low-quality firm. It further reduces the consumers' monetary surplus. Such impact is consistent, regardless of whether the VEE interactions involve previous or current consumers. We further discuss several model extensions, including dynamic pricing, combined social effects, and various cost structures, and verify that the aforementioned impacts of MEE and VEE are qualitatively robust to those extensions. Our results provide important managerial insights for firms in competitive markets and suggest that they need to not only be aware of the consumers' social interactions, but also, more importantly, distinguish the predominant form of the interactions so as to apply proper marketing strategies. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2021.3972 |
| Tags | Archival Empirical | Manager / Firm Behavior |
A theory of financial media
| Authors | Goldman, Martel, Schneemeier |
| Journal | Journal of Financial Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We present a model of media coverage of corporate announcements. Firms strategically use the media to communicate corporate announcements to a group of traders who observe announcements not directly but through media reports. Journalists strategically select which announcements to report to readers. Media coverage inadvertently incentivizes firms to manipulate the underlying announcements. In equilibrium, media coverage is tilted towards less manipulated negative news. The presence of financial journalists leads to more manipulation but makes stock prices more informative on average. We provide additional predictions regarding the media's impact on the quality of firm announcements and stock prices. |
| Keywords | Financial journalism, disclosure, manipulation, price quality |
| URL | https://www.sciencedirect.com/science/article/pii/S0304405X21003081 |
| Tags | Archival Empirical | Manager / Firm Behavior | Theory |
Competing for talent: Firms, managers, and social networks
| Authors | Hacamo, Kleiner |
| Journal | The Review of Financial Studies |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Do social networks help firms recruit talented managers? In our setting, firms are randomly connected to prospective young managers through former employees. Under a discrete choice model, we find networks increase the likelihood firms hire high-ability managers, while having no effect on the hiring rate of low-ability managers. Effects are greatest for nonlocal firms, strong ties, and peers living in the same neighborhood. Survey evidence suggests social networks promote recruitment by providing information about firm fundamentals to potential applicants. Our results help rationalize why the majority of managers hold prior connections to the firm. |
| URL | https://academic.oup.com/rfs/article-abstract/35/1/207/6146360?redirectedFrom=fulltext |
| Tags | Archival Empirical | Manager / Firm Behavior | Social Network Structure |
Social interactions and households' flood insurance decisions
| Authors | Hu |
| Journal | Journal of Financial Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Flooding is the most costly natural disaster faced by US households, yet policymakers are puzzled by the low take-up rates for flood insurance. Leveraging novel transaction-level data, this paper studies the influence of social interactions on households' insurance decisions. I show that households increase flood insurance purchases by 1-5 percent when their geographically distant friends are exposed to flooding events or to campaigns for flood insurance. These exogenous shocks to far-away friends should not affect local households' own insurance decisions except through peer effects. I provide evidence suggesting that social interactions facilitate learning through information dissemination and attention triggering. |
| Keywords | Flood insurance, social learning, peer effects, social networks |
| URL | https://www.sciencedirect.com/science/article/pii/S0304405X22000563 |
| Tags | Archival Empirical | Consumer Decisions |