Corporate tweeting benefits little-known companies, study says

Summary:News organizations tend to only cover big companies. Social media helps little companies break through, according to new research.

Does corporate use of Twitter have any impact on the bottom line?

A new Stanford Graduate School of Business study suggests that it does -- particularly for less well-known companies that can't break through the media attention cycle.

It's a well known fact that traditional news organizations hold a great deal of the public's attention; for a small, new or simply less-known company, that makes it difficult to get buzz.

So how to break through, then? According to Stanford researchers, tweeting "measurably increased the market liquidity of stocks" that normally get little attention by allowing companies to directly communicate with investors.

The researchers studied corporate tweets that contained links to the company’s full original announcement. They compiled data from 2007 through September 2009 for 102 information technology companies, and correlated that activity with trading data about the liquidity of each company's stock. Specifically, they looked at the spread between bid and ask prices: narrower spreads mean more liquidity.

They found that bid-ask spreads narrowed significantly for lesser-known companies when they tweeted about their news. Bigger companies that already enjoyed visibility didn't see any impact, through.

In short: tweets helped level the playing field.

We know that corporate communications departments are putting a lot of resources into social media without knowing exactly how they work; here's one result that suggests a positive impact to the bottom line.

Furthermore, the result undermines the traditional assumption that markets instantly assimilate every new bit of information about a company as soon as it becomes public. The reality is much less straightforward.

According to the research:

If a company announces its latest earnings over the PR Newswire, for example, the traditional view is that the information reaches everybody in the market immediately. Many analysts had already found that the real world was messier than that. In the real world, investors get much of their information from the news media — the Wall Street Journal, news services such as Bloomberg, and television networks such as CNBC. And news organizations pay much more attention to high-visibility companies because those are the ones that attract bigger audiences.

The researchers call it "information asymmetry."

But a real-time communication platform like Twitter? That changes the game, allowing a little-known company to communicate with investors directly and instantly. (It's not the only means, either: there is RSS and e-mail alerts, among others.)

How's that for R.O.I. on the social enterprise?

Topics: Social Enterprise

About

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. He is also the former editor of SmartPlanet, ZDNet's sister site about innovation. He writes about business, technology and design now but used to cover finance, fashion and culture. He was an intern at Money, Men's Vogue, Popular Mechanics and the New York Daily Ne... Full Bio

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