Managing rumors on electronic interaction platforms: How management responses affect investor reaction

Abstract

This study investigates how listed firms respond to investors’ rumor-related inquiries and examines the impact of these responses on investor reactions, as indicated by subsequent daily abnormal stock returns (ARs). Using a unique dataset of question-and-answer (Q&A) interactions from China’s major e-interaction platforms, established by the stock exchanges, our study provides insights into regulated firm-investor communications in a structured Q&A setting. Unlike informal social media channels, these platforms enable official responses from firm representatives, typically board secretaries, under direct regulatory oversight. By analyzing rumor-related Q&A pairs with regression models and several robustness checks, we find that firms can benefit from strategic response messaging. Our results show that prompt responses from management have a positive effect on the stock market. Interestingly, responses that closely match the questions do not necessarily lead to improved ARs. Responses that convey more positive emotions are associated with higher subsequent gains in ARs. Further, we investigate the role of specific conditions, including prior stock performance, investor sentiment in questions, and question topics, in the relationship between response behavior and investor reaction. These findings offer new insights into the consequences of management responses to unconfirmed events and highlight the potential value of Q&A communication between firm managers and potential investors.