Integrating Social Media into Investor Relations

Introduction 

Should the field of investor relations (IR) update its standard communication channels (i.e. traditional media such as newspapers (Schulz et al., 2022)) to include social media? This paper will explore the potential behind social media in influencing and understanding audiences’ investing decisions. I will focus on social media’s value for retail investors due to increased skepticism of the medium from institutional investors (Brunswick, 2022) and my lacking knowledge about the profession. I was drawn to investigate the topic because social media’s importance has always been evaluated upon in all of my public relations courses; however, its place in investor relations seems relatively absent. My investigation will present how social media can further fulfill investors’ information needs and responses to IR social media communication.

Fulfilling Information Needs of Stakeholders

To establish the potential of social media in IR, this paper will analyze how practitioners assimilate firm information to generate positive impacts such as lower price stock volatility (Chapman et al., 2019). It is through this baseline that one can see the value of social network integration. Chapman et al. (2019) argue that the assimilation of firm information through IR reduces data discrepancy, improves “the price discovery process by providing firm information to market participants … [and stakeholders] better understand [released financial data] implications for firm value” (p. 105). However, as von Alberti-Alhtaybat and Al-Htaybat (2016) note, these communications “commonly take place via … the corporations’ webpage. The format, while informative, is typically static, and, … does not allow active, real-time communication between investors and corporations” (p. 34).  This is not to say that traditional IR methods are too limited, instead social media should compliment investor relations in facilitating greater investor and analyst knowledge about valuable financial information. As Schulz et al. (2022) discovered, those with higher news media knowledge combine their use of social media with other news sources such as news websites rather than a reliance on social networks. Not only is functionality and interactivity increased with social media but also the amount of resources and touchpoints consumers are exposed to. Von Alberti-Alhtaybat and Al-Htaybat (2016) found that corporations and investors anticipate “increased transparency, empowerment of the investment community, reaching new target groups, increase in market share, competitive advantage and the perception of the investment community” (p. 47) through IR’s use of social media. However, what have current studies on this topic found?

Investor Reactions to IR Through Social Media

Brunswick’s (n.d.) 2023 digital investor survey found that more than 80 per cent of respondents utilized digital or social media to recommend or make investment decisions. Additionally, “88 [per cent of these investors] have investigated a company based on information posted on digital or social media” which could have led to “87 [per cent] of respondents sa[y] it was important for equities they cover to maintain a presence on digital and social media'' (Brunswick, n.d., para. 4). Brunswick’s (n.d.) 2023 survey found overlap in retail and institutional investors' behaviours in preferences for specific social media platforms such as Reddit for fulfilling their information needs. However, an earlier Brunswick (2022) survey showed that institutional investors’ trust rating of online platforms fluctuated dramatically in favour of companies’ investor relations page (82 per cent) and email newsletters (38 per cent) in comparison to social media platforms ranging from a rating of 23 to one per cent of participants. Therefore, understanding institutional investors and their behaviours in response to social media requires its own analysis.

The source of IR disclosure matters, but what about the tone and approach to content? Rennekamp and Witz (2022) argue that social media disclosures evoke different audience reactions in comparison to traditional media through its simplification of financial data and increased interactivity of stakeholders. When informal language was used in social media disclosures, audiences have heightened sensitivity towards engagement metrics. High participation in platform posts led to “greater willingness to invest than the use of formal language … [but] the use of informal language hurts willingness to invest … [with] low audience engagement” (Rennekamp & Witz, 2022, p. 1748). As a result, proper research and expertise into social media engagement with publics is recommended to prevent potential threats to investor trust in organizational profitability. 

Despite a suggested learning period before operating within the social network sphere, communicators should monitor online investor sentiment through these digital platforms. Renault (2017) analyzed the relationship between online investor sentiment (measured through StockTwits, a microblogging platform) and intraday U.S. stock returns. The author found “online investor sentiment helps forecast intraday stock index returns … provid[ing] … evidence of sentiment-driven noise trading” (Renault, 2017, p. 25).

Conclusion 

Social media has a multitude of benefits to offer IR, some of the main points being furthering stakeholders’ information needs, providing communicators the ability to interact with publics and understanding online investors sentiments to help forecast sentiment-driven noise trading. However, the above should serve as an addition to traditional media IR utilization due to varying public responses to IR communication channels. Rather than rush into social media integration, it is essential that respect is paid towards the area through research and recommended expertise to prevent communication errors made out of ignorance.