Earnings Virality

Abstract

We examine the determinants and market consequences associated with earnings announcements going viral on social media, a phenomenon we label “earnings virality.” Using a comprehensive panel of historical Twitter data, we find that the typical earnings announcement receives relatively little social media coverage, but a subset go viral on social media, quickly reaching the feeds of millions of people. Viral earnings announcements generally have Twitter content that is more extreme in tone, more emotive, and contains less unique content. At the firm level, earnings virality is positively associated with revenue surprises, investor recognition, and retail investor ownership. We also observe greater investor activity around viral earnings announcements including trading volume, price volatility, retail investor trading volume, and retail stock holdings, but less professional investor search activity. Finally, our findings suggest that earnings virality is detrimental to price efficiency, as it coincides with lower market liquidity and slower price formation. These detrimental pricing effects are stronger when the average social media content is more emotional and less substantive. Overall, our evidence suggests that user-driven dissemination through social media platforms, when amplified and taken to extreme levels, can be harmful to earnings price efficiency.

Keywords: Earnings Virality, Viral, Social media, Earnings announcements

JEL Classification: G12, G14, M41