Accounting Professors Examine Effect of Social Media on Acquisitions

In corporate mergers and acquisitions, timing is everything. When and how deal characteristics reach the investment community can directly affect the bottom line. Two Suliman S. Olayan School of Business professors in the finance, accounting, and managerial economics track set out to examine how social media, specifically Twitter, impacts acquisitions and the role social media plays for major corporate events such as acquisition announcements.

Mohamad Mazboudi, assistant professor of accounting, and Samer Khalil associate professor of accounting, studied how Twitter messages can disseminate news to a broad set of investors in a timely manner. Because the social media site Twitter “pushes" messages globally to users, it bypasses traditional media channels such as newswire services and other press releases. Compared to traditional media, social media and Twitter in particular, can reduce the time and energy investors spend sorting through various information sources to search and gather (i.e., pull) desired information. Because investors generally consider acquisitions by large firms as 'bad' news and frequently react negatively to acquisition announcements, the impact of communication timing and method can substantially affect an acquiring company's returns. The researchers set out to discover if messaging, sent directly from the company and to all investors concurrently, would balance out the anticipated negative market reaction to an acquisition.

To support their argument, Drs. Mazboudi and Khalil collected acquisition announcements covering four years and found that company size is a main factor in whether the company used Twitter to post information about their acquisition activities. Hence, large companies were able to mitigate the anticipated negative reactions. Their research suggests that using Twitter in the context of firm acquisitions allows large firms to avoid significant drops in their stock prices and, thus, could lead to greater stock price stability.

They also found that acquisitions announced on Twitter were more heavily represented in high-technology industries. “We weren't surprised that high-tech companies would share information on Twitter because they are more likely to be early adopters of technology and use technology-based information channels, such as Twitter, to announce their transactions," they stated.

Their analysis provides initial evidence that using Twitter did indeed have a significant impact on financial market reaction.

Overall, their work suggests that Twitter has become an important investor relation channel for major corporate events such as acquisition announcements, and that acquirers can use this new channel to enhance stability in their stock prices. That information can help companies both in the MENA region and globally, which makes OSB research both timely and relevant for businesses wanting to improve their business communications.