The way people lie in markets: Detectable vs. deniable lies
| Authors | Tergiman, Villeval |
| Journal | Management Science |
| Year | 2023 |
| Type | Published Paper |
| Abstract | In a finitely repeated game with asymmetric information, we experimentally study how individuals adapt the nature of their lies when settings allow for reputation building. Although some lies can be detected ex post by the uninformed party, others remain deniable. We find that traditional market mechanisms, such as reputation, generate strong changes in the way people lie and lead to strategies in which individuals can maintain plausible deniability; people simply hide their lies better by substituting deniable lies for detectable lies. Our results highlight the limitations of reputation to root out fraud when a deniable lie strategy is available. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2022.4526 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical |
The impact of social nudges on user-generated content for social network platforms
| Authors | Zeng, Dai, Zhang, Zhang, Zhang, Xu, Shen |
| Journal | Management Science |
| Year | 2023 |
| Type | Published Paper |
| Abstract | Content-sharing social network platforms rely heavily on user-generated content to attract users and advertisers, but they have limited authority over content provision. We develop an intervention that leverages social interactions between users to stimulate content production. We study social nudges, whereby users connected with a content provider on a platform encourage that provider to supply more content. We conducted a randomized field experiment (N=993,676) on a video-sharing social network platform where treatment providers could receive messages from other users encouraging them to produce more, but control providers could not. We find that social nudges not only immediately boosted video supply by 13.21% without changing video quality but also, increased the number of nudges providers sent to others by 15.57%. Such production-boosting and diffusion effects, although declining over time, lasted beyond the day of receiving nudges and were amplified when nudge senders and recipients had stronger ties. We replicate these results in a second experiment. To estimate the overall production boost over the entire network and guide platforms to utilize social nudges, we combine the experimental data with a social network model that captures the diffusion and over-time effects of social nudges. We showcase the importance of considering the network effects when estimating the impact of social nudges and optimizing platform operations regarding social nudges. Our research highlights the value of leveraging co-user influence for platforms and provides guidance for future research to incorporate the diffusion of an intervention into the estimation of its impacts within a social network. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2022.4622 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Manager / Firm Behavior |
The impact of social media influencers on the financial market performance of firms
| Authors | Zhang, Keasey, Lambrinoudakis, Mascia |
| Year | 2023 |
| Type | Working Paper |
| Abstract | A key development in social media has been the remarkable growth of influencers and their increasing use by firms to manage their online presence and image, and to promote their products. Despite the huge growth of influencers and their use by firms, there is a lack of analysis of social media influencers and their impact on the financial market performance of firms. Anecdotal evidence suggests mega influencers are able to affect the stock prices of firms via social media. We ask whether the effect on stock prices identified in anecdotal evidence is generalizable to all mega influencers and other financial market characteristics of firms. After developing hypotheses from the Noise Trader model and using a hand collected dataset of more than 11,000,000 mega influencer posts on Instagram (2012-2019), we find that mega influencers affect investors' attention, volatility, trading volume and, through extreme sentiment posts, stock returns. The effect on returns is, however, very short lived. Companies need to be aware of these stock market consequences if they intend to use influencers for external image purposes and/or product promotion. |
| Keywords | Influencers, mega influencers, investors, sentiment, firms, financial market performance |
| URL | https://business.leeds.ac.uk/departments-accounting-finance/staff/71/dr-costas-lambrinoudakis |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Propagation of Noise / Undesirable Outcomes |
Competing for recommendations: The strategic impact of personalized product recommendations in online marketplaces
| Authors | Zhou, Zou |
| Journal | Marketing Science |
| Year | 2023 |
| Type | Published Paper |
| Abstract | We study how an online marketplace's personalized product recommendations and its consumer profiling accuracy affect third-party sellers' competition and the market outcomes. Sellers strategically adjust prices to compete for the marketplace's recommendations. As the marketplace more accurately predicts consumers' preferences, the equilibrium price first decreases and then increases, and both the marketplace's and the sellers' profits may decrease despite the improved recommendation accuracy. Moreover, recommending the most profitable product for each recommendation may reduce profits of the marketplace and the sellers, and the marketplace can benefit from excluding pricing information in its recommendation decisions to prevent sellers' recommendation competition. Counterintuitively, regulations that bar recommendations from considering profit margin information can lead to higher prices and thus harm consumers. These results are driven by competing sellers' three distinctive incentives: competing for recommendations, exploiting targeted consumers, and undercutting rivals' prices. We also find that our key insights remain qualitatively unchanged if the marketplace recommends products based on consumer surplus, and the equilibrium price will be lower in comparison. Finally, various extensions demonstrate the robustness of these results. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mksc.2022.1388 |
| Tags | Archival Empirical | Manager / Firm Behavior |
Do managers' nonnative accents influence investment decisions?
| Authors | Barcellos, Kadous |
| Journal | The Accounting Review |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Reactions to earnings calls are sensitive to subtle features of managers' speech, but little is known about the effect of nonnative accents in this setting. Nonnative-accented CEOs may avoid holding calls in English for fear of investors' negative stereotypes. However, theory indicates that stereotypes from the CEO position and nonnative accents conflict, and that the process of reconciling conflicting stereotypes requires effortful processing. We use a series of four experiments to test each link of the causal chain that we hypothesize based on this theory. We demonstrate that motivated investors reconcile conflicting stereotypes by inferring exceptional qualities, such as hard work and determination, that positively affect their impressions of nonnative-accented CEOs and, hence, of the company as an investment. We also show that, because bad news stimulates effortful processing, investors receiving bad (versus good) news are more likely to form a positive image of nonnative-accented CEOs and their companies. |
| Keywords | Earnings conference calls, investment decisions, nonnative accents, impressions of CEOs |
| URL | https://doi.org/10.2308/TAR-2020-0228 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Manager / Firm Behavior |
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 |
Using social media to identify the effects of congressional viewpoints on asset prices
| Authors | Bianchi, Cram, Kung |
| Year | 2022 |
| Type | Working Paper |
| Abstract | This paper examines the extent to which individual politicians affect asset prices using a high-frequency identification approach. We exploit the regular flow of viewpoints contained in a large volume of tweets from members of US Congress. Congressional tweets targeting individual firms are collected and classified based on their tone. Supportive (critical) tweets increase (decrease) stock prices of the targeted firm in minutes around the tweet. The price response persists for several days, during which analysts revise their forecasts about the firm cash flows. Selected politician tweets linked to legislation affect the stock prices of firms in the same industry as the targeted firm. The timeline of politician viewpoints within a particular bill exhibits surges in relevant news that predict roll call votes months before the signing of the bill. We highlight how the social media accounts of politicians are a valuable source of political news. |
| Keywords | Asset pricing, high-frequency identification, partisanship, social media |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3846121&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | 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 |
Social media and short sellers
| Authors | Cai, McLean, Zhang, Zhao |
| Year | 2022 |
| Type | Working Paper |
| Abstract | We ask how social media impacts the role of short sellers in financial markets. We find some evidence consistent with manipulation. Prior to high short interest, a stock's social media tone is abnormally positive, but its traditional media tone is not. Once highly shorted, social media tone flips and is abnormally negative. Using the firm-by-firm introduction and temporary suspension of short selling in China as natural experiments, we find that both the volatility of social media tone and the number of posts increase when a firm becomes shortable, and then decrease when shorting was suspended. Highly shorted firms with pump-and-dump social media patterns also have pump-and-dump stock return patterns and abnormally high trading volume. Manipulative social media tone is more likely when there are more posts from active social media users, who are perhaps better able to influence other users. Our findings are consistent with the idea that social networks and social media can enable manipulation. |
| Keywords | Short selling, social media, manipulation, arbitrage |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3907480&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Media and Textual Analysis | Social Network Structure |
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 |
Do hedge funds strategically misreport their holdings? Evidence from 13F restatements
| Authors | Cao, Da, Jiang, Yang |
| Year | 2022 |
| Type | Working Paper |
| Abstract | Hedge funds can subsequently amend their originally reported 13F quarterly holdings using restatements. We conduct the first systematic analysis of such filings, which are as common as confidential filings (used by funds to delay holdings disclosures), but affect four times as many stocks. Restated holdings are associated with significant abnormal returns, suggesting that some original holdings are strategically misreported to hide fundsâ trading intentions. We construct a return gap measure to gauge the value added by such restatements and find that it predicts future fund performance. Finally, commonly used databases such as Thomson Reuters do not fully adjust for restatements. |
| Keywords | Strategic disclosure, hedge funds, ownership disclosure, 13F holdings, restatement, fund skill |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3907560 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior |
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 |
Can social media inform corporate decisions? Evidence from merger withdrawals
| Authors | Cookson, Niessner, Schiller |
| Year | 2022 |
| Type | Working Paper |
| Abstract | This paper examines how social media informs corporate decisions by studying the decision of firm management to withdraw an announced merger. A standard deviation decline in abnormal social media sentiment following a merger announcement predicts a 0.64 percentage point increase in the likelihood of merger withdrawal (16.6% of the baseline rate). The informativeness of social media for merger withdrawals is not explained by abnormal price reactions or news sentiment. Consistent with learning from external information, we find that the social media signal is more informative after a firm adopts a corporate Twitter account, which offers a conduit for listening to investor feedback. In addition, most of the informativeness is driven by investors who reference fundamental information, not price trends, and is driven by longer tweets that likely contain investment analysis. The social media signal is also more informative for complex mergers in which analyst conference calls take a negative tone, driven by the Q&A portion of the call. Overall, these findings imply that social media is not a sideshow, but an important aspect of firm information environment. |
| Keywords | Social media, FinTech, feedback effects, capital allocation, M&A |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4059633 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Media and Textual Analysis |
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 |
Strategic learning and corporate investment
| Authors | Decaire, Wittry |
| Year | 2022 |
| Type | Working Paper |
| Abstract | We show that firms anticipate information spillover from peers' investment decisions and delay project exercise to learn from them. While this information improves project selection, the cost of waiting erodes these gains. To establish causality, we exploit local exogenous variation from the 1800s that shapes the number of peers that a firm can learn from today. The effect is most salient when information is scarce, costs of waiting are low, projects have low expected profitability, and the source information is more relevant. Finally, the anticipation of spillovers dampens aggregate investment, suggesting a role for this mechanism in macro-investment models. |
| Keywords | Real options, strategic interactions, learning, peer behavior, investment, historical data |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3923811 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior |