Is Firms’ Social Media Engagement Informative about Firm Performance?

While extant literature has studied the consequences of the firm’s tweets, it has not considered the followers’ response. In this paper, I examine whether the intensity of followers’ engagement with firms on social media is informative to capital market participants. I use Twitter to examine my research question and define engagement as the collective response – likes, retweets, and replies – of followers to firms’ tweets. My data comprises 45,213 Tweet firm-quarters, and approximately 335 million engagement actions (likes, retweets, and replies) of firms’ followers collected from the Primary Twitter sites of 2,194 publicly-traded US firms between 2006 and 2017. I find that changes in engagement volume represent value-relevant information to investors that are impounded into stock prices concurrently. Changes in each component of followers’ engagement – likes, retweets, and replies – are also value relevant. Furthermore, followers’ engagement volume is a forward-looking indicator of stock prices: the monthly change in the engagement volume varies directly with the following month’s stock returns. Additional analyses reveal that changes in engagement volume incrementally explain sales growth and unexpected sales growth. The findings also suggest that the observed results are not driven by investor attention