Regulatory Warnings and Endorsement Disclosures on Social Media

Abstract

Social media platforms such as Instagram have become an important channel for influencer marketing. Regulatory bodies such as FTC(U.S.) and ASA(U.K.) require influencers on these platforms to clearly declare an advertised social media post as an ad using hashtags such as #ad, #sponsored. However, many a times influencers fail to disclose the endorsements. In light of these malpractices, FTC sent notices to 90 influencers in March 2017. In this paper, I estimate the impact of such disclosure notices on a) disclosure levels b) follower engagement. I create a novel dataset which consists of nearly 150,000 posts across 60 influencers. I use difference-in-difference method to find out that after the notice was sent out disclosure increases. I find that follower engagement (likes and comments) for the influencers which received warnings from the FTC got reduced substantially. Interestingly, I find substantial spillover effects of these notices on influencers which are in FTC jurisdiction but didn’t received the notice. Specifically, disclosure percent of these influencers increased and engagement rate reduced, however, as expected these influencers are relatively less impacted by these notices as compared to the influencers which did receive the FTC notice. I find these results consistent across different categories of influencers. This research is relevant for both social media influencers and policy makers, in that, influencers should preemptively disclose because if the regulator sends out notice, then customers may punish the influencer through less engagement. For policymakers, notices turn out to be a substantive policing instrument, in that, it not only effects the influencers who get the notice but also the influencers who are within the jurisdiction but didn’t get the notice.