Earnings Virality

Abstract

We examine the determinants and market implications 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, reaching the feeds of millions of people very quickly. Viral earnings announcements are generally associated with Twitter content that is more extreme, more emotive, and less substantive. At the firm level, earnings virality is positively associated with revenue surprises, investor recognition, and retail investor ownership. We also find that it is positively associated with investor activity including trading volume, price volatility, retail investor trading volume, and retail stock holdings, but is negatively associated with professional investor 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 effects are stronger when the average content of social media chatter 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.