The Role of Social Media in the Financial Market: Evidence from Wikipedia and Twitter

Social media has changed the way investors achieve information, as well as the way firms communicate with their stakeholders. Wikipedia and Twitter, which are two typical social media platforms, both provide information but at the same time are quite different from each other. The two studies in this thesis examine the different roles of Wikipedia and Twitter in changing the information environment of the financial market.;In the first study, I explore whether Wikipedia plays a governance role in the financial market by reducing the information disadvantage of individual investors. I hypothesize that the aggregation of information on Wikipedia enables individual investors to collectively monitor insiders and institutional investors. Using the creation of a firm Wikipedia page as an information event, my empirical results support my hypothesis and further show that the governance effect is stronger for firms with higher institutional ownership concentration as well as those with more intensive insider trading activity. Taken together, these findings support the view that Wikipedia helps mitigate the information asymmetry among individual investors, institutional investors, and corporate insiders.;In the second study, I examine the relationship between firm performance and information dissemination. I find that Twitter provides a new distribution channel under full control of firms, which enables them to broaden their information dissemination by using Twitter rather than relying solely on third-party intermediaries. The empirical results show that when earnings performance is good, firms increase the dissemination of earnings news, include more financial information and in a more positive tone; when earnings performance is poor, firms disseminate less earnings news, and instead increase non-earnings information dissemination shortly after the earnings announcements, in a more positive tone. These results provide evidence that firms are involved in discretionary dissemination using Twitter. Finally, additional analyses show that tweet dissemination can moderate the market returns to earnings surprise.