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A critical assessment of the uses and effectiveness of social media in investor communications

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A critical assessment of the uses and effectiveness of social media in investor communications

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A CRITICAL ASSESSMENT OF THE USES AND EFFECTIVENESS OF
SOCIAL MEDIA IN INVESTOR COMMUNICATIONS

by

Mianmian Li

A Thesis Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTER OF ARTS
(STRATEGIC PUBLIC RELATIONS)

May 2015

Copyright 2015 Mianmian Li
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TABLE OF CONTENTS

List of Exhibits ............................................................................................................. 3
List of Appendices ........................................................................................................ 3
Chapter One: Introduction ......................................................................................... 4
Chapter Two: A Review of Investor Communications and Social Media .............. 6
I. A Review of Investor Communications!......................................................!6!
II. A Review of Social Media!..............................................................................!16!
Chapter Three: The Uses of Social Media in Investor Communications and
Stakeholders' Attitudes toward Them ..................................................................... 26
I. History and Key Developments .................................................... 26
II. Key Findings regarding Practices and Effectiveness of Social
Media in Investor Communications from Secondary Research .......... 29
III. Key Findings regarding Practices and Effectiveness of Social
Media in Investor Communications from Primary Research .............. 32
IV. Other Contributing Factors to the Practices and
Effectivess of Social Media in Investor Communications .................. 45
V. Research Synthesis and Key Findings regarding the Practices and
Effectiveness of Social Media in Investor Communications .............. 50
Chapter Four: Analysis of the Uses and Effectiveness of Social Media in
Investor Communications ......................................................................................... 53
I. Strengths of Social Media ............................................................. 53!
II. Weaknesses of Social Media ....................................................... 55
III. Effective and Appropriate Practices of Social Media in
Investor Communications ................................................................... 57
IV. Ineffective and Inappropriate Practices of Social Media in
Investor Communications ................................................................... 61!
Chapter Five: Conclusion.......................................................................................... 64
Reference List ............................................................................................................. 66
Bibliography ...............................................................................................................73
Appendices ................................................................................................................. 76

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LIST OF EXHIBITS

Exhibit A: A Brief History of Social Media Sites ...................................................... 17
Exhibit B: Changes in Active Usage of Top 20 Social Platforms from
Q2 to Q4, 2013 .......................................................................................... 24
Exhibit C: Distribution of Sample Companies’ Attitudes About Social Media ......... 40
Exhibit D: Distribution of Industries of Companies with a Positive
Attitude toward Social Media ................................................................... 41
Exhibit E: Distribution of Industries of Companies with a Negative
Attitude toward Social Media ................................................................... 43
Exhibit F: Post from Reed Hastings’s Facebook Page ............................................... 46
Exhibit G: Post from Reed Hastings’s Facebook Page ............................................... 47
Exhibit H: Timeline of Netflix’s Facebook Post Issue ............................................... 48
Exhibit I: Perceived Strengths v. Weaknesses and Appropriate v. Inappropriate
Practices of Social Media ............................................................................ 63

LIST OF APPENDICES

Appendix 1: Chen Chen Interview Transcript ............................................................ 76
Appendix 2: Keemia Ferasat Interview Transcript ..................................................... 78
Appendix 3: Emily Wang Interview Transcript .......................................................... 79
Appendix 4: Content Analysis Code Lists .................................................................. 81
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CHAPTER ONE: INTRODUCTION

Social media have already been well adopted across many areas of public
relations (PR), including: entertainment PR, where celebrities interact with their fans
on sites like Twitter, Instagram and Reddit; marketing PR, where sponsored content is
posted on Facebook; and crisis management, where companies release timely and
important information. However, in the highly specialized arena of Investor
Communications, where information disclosure is heavily regulated by government
agencies across the world, have social media been adopted? What are the attitudes of
stakeholders toward their use? How effective is using social media for Investor
Communications? Most importantly, what are the most appropriate and effective roles
of social media in this practice?
This thesis will assess the use and effectiveness of social media in Investor
Communications by (1) reviewing the concepts of Investor Communications and
social media, (2) exploring the uses of social media specifically in Investor
Communications and stakeholders’ attitudes toward them and (3) summarizing the
overall effectiveness of social media’s usage in Investor Communications. Based on a
critical analysis of the above evidence, the author will draw conclusions as to what are
the most appropriate and effective roles of social media in the practice of Investor
Communications and to what extent social media should be utilized in Investor
Communications. The assessment and analysis are based on secondary research
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including citations from reference books, academic journals, websites, mainstream
media, and professional blogs, as well as primary research including a content
analysis and interviews with three Investor Communications professionals.

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CHAPTER TWO: A REVIEW OF INVESTOR COMMUNICATIONS AND
SOCIAL MEDIA
I. A Review of Investor Communications
1. Definitions of Investor Relations and Investor Communications
The National Investor Relations Institute (NIRI) has defined Investor
Relations (IR) as:

A strategic management responsibility that integrates finance, communication,
marketing and securities law compliance to enable the most effective two-way
communication between a company, the financial community, and other
constituencies, which ultimately contributes to a company’s securities
achieving fair valuation” (NIRI 2003). (The terms “Investor Relations” and
“Investor Relations” are generally considered to be synonymous.)

While it deals primarily with financial information, Investor Relations must,
by nature encompasses strategic communications outreach. Therefore, Investor
Communications can be referred to as the communication process that connects a
company, the financial community, and other relevant constituencies through a broad
range of communication tools.

2. The History of Investor Communications
According to Jennifer Moyer (2011) at the Institute for Public Relations (IPR),
the modern profession of Investor Relations originated in 1953 with Ralph Cordiner,
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Chairman of General Electric, who at that time created a function in charge of all
shareholder communications. Moyer stated in her study (2011) that there are three
identifiable eras in the history of Investor Relations in the United States: (1) the
Communication Era from 1945 to 1970, (2) the Financial Era from 1970 to 2000 and
(3) the Synergy Era after 2000.
In the Communication Era (1945-1970), publicly traded companies started to
compete for the investment dollars the American public obtained during the economic
boom of the post-World War II years. In this situation, the management of companies
turned for help to public relations professionals, who at that time were largely press
agents and had little financial expertise. Investor Communications were conducted
one-way from corporations to the public, mostly through mass media. No research
was conducted by corporations to understand their shareholding patterns (i.e., shares
owned by the promoter group and the general public), nor was feedback from
shareholders ever collected. At that time, Investor Communications lacked strategic
and managerial support from the top management of most corporations (Moyer 2011).
The Financial Era (1970-2000) witnessed the institutionalization of the US
financial market. Corporations’ main shareholders shifted from individual
shareholders to more sophisticated institutional investors (e.g. life insurance, pension
funds, mutual funds, etc.), and the Investor Communications responsibilities were
assumed by accountants and financial professionals instead of communication
specialists. Investor Communications channels changed from mass media to
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one-on-one meetings with institutional investors and financial analysts, which
encouraged two-way communication between corporations and shareholders.
However, in that era, the goal of Investor Communications was to maximize the
company’s stock price by persuading its shareholders to purchase the company’s
shares. The focus on profits over everything else might be one of the factors that led
to a subsequent series of accounting scandals and famous corporate bankruptcies,
such as Enron’s “creative accounting”. (Moyer, 2011)
In the current Synergy Era (2000- ) of Investor Relations companies seek to
improve shareholders’ understanding of their financial situations by utilizing modern
communication strategies and tactics to share financial information. Investor
Communications is interactive, not only in persuading shareholders to purchase the
company’s stock, but also in helping the company’s decision-making and strategic
planning activities. IR professionals can no longer satisfy investors’ needs simply by
offering them financial reports that are required by law. Investors are now interested
in learning about the company’s business, strategy and values, as well as its financial
performance. (Moyer, 2011)

3. Purposes of Investor Communications
In his book Running an Effective Investor Relations Department (2010, 2),
Steven M. Bragg states that the key objective of an Investor Relations (IR)
department is to maximize the company’s market value by maintaining a good
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relationship with its shareholders, the investment community and other constituencies.
In order to achieve this objective, specific goals must be set up for the Investor
Communications team, including (1) altering perception of the company; (2)
increasing analyst coverage; (3) increasing geographic coverage; (4) reducing stock
price volatility, and (5) managing relationships with existing shareholders (Bragg
2010, 2-3). Essentially, the target of an IR department is to “get the information out to
prospective investors and those who advise them,” (Marcus 2005, 14).

4. Practices and Platforms of Investor Communications
Today, the responsibilities of an Investor Relations department include (1)
formulating the investment proposition (i.e. key messaging); (2) maintaining
relationships with financial publications (e.g. Yahoo Finance, Bloomberg News and
The Wall Street Journal); (3) conducting analysts meetings and annual meetings; (4)
generating company announcements (e.g. publishing CEO’s speeches) and (5)
managing information distribution procedures (e.g. use of Dow Jones, Business Wire,
etc.) Traditionally, Investor Communications has shared information through the
following methods: annual reports, proxy solicitations, press releases, fact sheets,
reports, speech transcripts, advertising, road shows and media tours, conference calls,
and investor days. (Bragg 2010, 4-5) It is standard now for most companies to include
IR sources on their websites.
Today, several social media platforms are being used for Investor
Communications. Twitter, StockTwits, YouTube, LinkedIn, Facebook, and
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SlideShare all have unique features that make them viable choices for IR
professionals to use for sharing information. These platforms may be used for various
IR activities, including making cross-platform earnings announcements; monitoring
online discussions about their company, peers and the industry; and holding analyst
Q&A sessions, among others. Twitter has a particularly high usage rate in many
aspects of Investor Communications (Jones 2011), and StockTwits has become one of
the top 10 financial websites since it started in 2008 (Joyce 2013, 38). As Francis
Costello, Chief Operating Officer of StockTwits pointed out, its success benefits from
the creation of the “CashTags” (i.e., $TICKER) and the strict management of the
content quality and authenticity offered from its community (Xignite, n.d.).

5. Regulatory and Legal Environment of Investor Communications
In the US, arguably one of the most important federal regulations that
companies must deal with is Regulation FD (for “Fair Disclosure”). According to
Steinberg and Myers (2002), Regulation FD was promulgated by the SEC under the
Securities Exchange Act of 1934 and prohibits companies from selectively disclosing
key information to analysts, institutional investors and others without concurrently
making a widespread public disclosure. Without these rules in place, select parties are
given an unfair opportunity to profit or avoid a loss (Steinberg and Myers 2002). The
act rules that all investors should have equal access to a company’s material
disclosures at the same time (Lynn and Pinedo 2015, 1).
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David Lynn and Anna Pinedo, renowned attorneys in this field from the law
firm of Morrison & Foerster, include a detailed interpretation of Regulation FD in
“Frequently Asked Questions about Regulation FD” (2015, 1): According to
Regulation FD, if a public company or its representative discloses material nonpublic
information to certain enumerated persons, the company or the representative must
also disclose that information to the public. There are two kinds of public disclosures:
(1) If the information was disclosed intentionally, the public disclosure should be
made simultaneously. (2) If the information was disclosed unintentionally, the public
disclosure should be made “promptly afterwards” (Lynn and Pinedo 2015, 1). Public
disclosure channels include an “Exchange Act filing (such as a Current Report on
Form 8-K
1
)” or any other methods “reasonably designed to effect broad,
non-exclusionary distribution of the information”. (Lynn and Pinedo 2015, 1)
Based on Lynn and Pinedo’s interpretation (2015, 2-3), there are two
important criteria – “material” and “nonpublic” – that determine whether the
disclosure of information is considered to be fair:
The information is “material” if a reasonable shareholder is very likely to
consider it important in their investment decision-making process, or if the
information “would have been viewed by the reasonable investor as having
significantly altered the ‘total mix’ of information made available” (U.S. SEC, 2000).
The information should be regarded as “nonpublic” if its dissemination has not
been made available to the general investing public. If information is made public, it
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! Form 8-K is “the ‘current report’ companies must file with the SEC to announce major events that
shareholders should know about”. (U.S. SEC, n.d.)!
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“must be disseminated in a manner calculated to reach the securities marketplace in
general through recognized channels of distribution, and public investors must be
afforded a reasonable waiting period to react to the information” (U.S. SEC, 2000).
Different circumstances of information dissemination determine how long a
“reasonable waiting period” is. (Lynn and Pinedo 2015, 3)
If a company or individual is found to be in violation of Regulation FD, one
can be subject to an SEC enforcement action including an injunction, fines or “the
attendant obligations to disclose the violation.” (Lynn and Pinedo 2015, 8)
In addition to Regulation FD, other important laws and regulations that affect
Investor Communications activities in the US include (1) the Sarbanes-Oxley Act
(2002), which mandates new rules for boards of directors, accounting professions,
consulting practices, financial reports certifications, internal controls and others; (2)
the Securities Exchange Act of 1934, which prohibits insider trading on material,
non-public information; and (3) the Private Securities Litigation Reform Act of 1995,
where the safe harbor provisions aims to reduce frivolous law suits by raising the bar
of evidence of fraudulent behaviors (Marcus 2005, 31-43).

6. Macro Trends of Investor Communications
Before the widespread use and availability of social media platforms, most
public companies did not have opportunities to directly engage with shareholders
beyond traditional forms of outreach such as conference calls, annual meetings, and
emails. Moreover, the traditional IR function had no efficient and proactive channels
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to maintain a two-way dialogue with shareholders, and those who influence them, on
a large scale.
However, in recent years, the nature of the relationships between publicly held
companies and the financial community has rapidly evolved as a result of an
increased emphasis on shareholder engagements. For example, there is an increased
number of institutional and active shareholders demanding more accountability from
companies and management. For instance, famous activist investor Carl Icahn wrote
Tim Cook, Apple Inc.’s Chief Executive Officer, a letter, arguing the company should
buy back more shares because of “a massive undervaluation” of its stock price (Erin
McCarthy, “Icahn Letter Pushes Apple to Buy Back More Shares,” The Wall Street
Journal, October 9, 2014, accessed March 30, 2015). Moreover, through the
provisions of the Dodd-Frank Act (2010),
2
legislators and regulators have also
demanded closer relationships among investors, boards and top executives of
companies. For example, U.S. Commodity Futures Trading Commission (CFTC) has
been committed to transparency in the rulemaking process by publishing top
executives’ meetings information online to investors and the public. (CFTC, n.d.)
In short, public companies now have the responsibility and, more importantly,
the opportunity, to develop better shareholder engagement programs to communicate
with investors with greater frequency and attention than they have in the past.
Moreover, as Bruce Marcus mentioned in his book Competing For Capital:
Investor Relations in a Dynamic World, corporations still focused on traditional
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! The Dodd-Frank Act (Dodd-Frank Wall Street Reform and Consumer Protection Act) is a United States federal
law enacted in July 2010. It creates new financial regulatory processes that enforce transparency and
accountability, aiming to prevent another significant financial crisis since 2008. (Margaret Rouse, n.d.).!
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investor relations communication methods now face intense competition for investors’
capital from many other companies, for which “growth and infusion of capital is both
desirable and imperative” (Marcus 2005, 15).
Today, investors are able to access more information than ever before from all
the parties of the investment community, including shareholders, analysts, and
opinion leaders. However, the broadened accessibility of investment information and
online databases have now led to new problems in managing data for value,
effectiveness, and communication (Marcus 2005, 5) because on the one hand,
investors can reach more information sources, but on the other hand, few of them
know how to interpret them (Marcus 2005, 5).
Therefore, to become more competitive in attracting investors’ capital, public
companies needs to make a unique investment argument based on its business model,
strategy, brand, leadership, or a combination of these and other key attributes. These
all add dimensions to a company’s financial profile, indicating to shareholders and
potential investors that their investment in the company is warranted. Therefore,
public companies must recognize that they are competing for capital, and that their
Investor Communications activities cannot be performed in a silo away from their
other PR activities, especially those that target their customers. For these reasons,
investor relations have grown to encompass marketing concepts (Marcus 2005, 15).
Under this marketing-oriented approach to investor relations, corporate IR
teams have assumed some new responsibilities, including engaging shareholders
online, presenting the company’s public face, developing financial campaign
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strategies, etc. The strategic communication nature of these new responsibilities for
Investor Communications share similarities with PR practices that have long been in
place, and requires IR practitioners to be responsive to new technology and trends in
communications, in order to connect with their key audiences (institutional investors,
individual investors, analysts, financial media, regulators, etc.) in the most effective
and transparent way (Bloomberg 2014).
As evidenced daily through numerous successful campaigns and events, social
media are effective and responsive communication channels in PR and strategic
communications practices. For example, Oreo’s Daily Twist Campaign on Facebook
generated a large amount of user participation and increased customer engagement by
110 percent (Hayes 2013). A study conducted by Stephanie E. Bor, Ph.D. (2014)
shows that customers who engage more with KLM Royal Dutch Airline’s social
media platforms are more likely to have positive perceptions of the company’s
reputation (Bor 2014). The success of Coca-Cola’s “Share a Coke” campaign could
not be achieved without the 125,000 posts across all social channels (Schweigert
2014). Since the “new” marketing-oriented approach of Investor Communications
shares similarities with marketing practices in many aspects, such as achieving
intangible values, conducting competitor analysis and nurturing relationships with
target audiences, it is fair to infer that social media can also serve as powerful tools in
effective Investor Communications.

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II. A Review of Social Media
1. A Definition of Social Media
Andreas M. Kaplan and Michael Haenlein (2009) defined social media as "A
group of Internet-based applications that build on the ideological and technological
foundations of Web 2.0, and that allow the creation and exchange of user-generated
content” (Kaplan and Haenlein 2009). Compared to Web 1.0, when information was
communicated one-way from content publishers to Internet users, social media exist
as a group of platforms by which users can create, comment and share information by
themselves. Philip N. Howard and Malcolm R. Parks (2012) offer a more specific
definition of social media:
Social media consists of (1) the information infrastructure and tools used to
produce and distribute content that has individual value but reflects shared
values; (2) the content that takes the digital form of personal messages, news,
ideas, that becomes cultural products; and (3) the people, organizations, and
industries that produce and consume both the tools and the content (Howard
and Parks 2012, 1).

2. The History of Social Media
As Kaplan and Haenlein mentioned in Users Of The World, Unite! The
Challenges and Opportunities of Social Media (2009), the social media era we know
it today started in 1998 when Bruce and Susan Abelson created the social networking
site “Open Diary” to gather online diary writers into one community. However, Drew
Hendricks disputes this in his Complete History of Social Media: Then And Now
(2013), stating that the first recognizable social media site, “Six Degrees”, was
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founded in 1997. Regardless of the exact year social media supposedly originated, it’s
no coincidence that it very clearly grew in prominence thanks to the growth of
widespread availability of high-speed Internet access.. The following infographic
shows a brief history of key social media sites.

Exhibit A: A Brief History of Social Media Sites

Source: Marrouat and Benyagoub 2013.

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3. Purposes and Uses of Social Media
According to Ian Collins (n.d.) of Tecmark SEO Manchester, people use
social media for five main purposes:
(1) Personal purposes: Keeping in touch with friends has always been one of the core
functions and the most common use of social media. For example, people use
Facebook to create a profile, connect with their friends in real-time, share photos
and chat without geographic barriers.
(2) Customer service: This is one of the business applications of social media.
Companies and organizations develop direct connections with their customers and
can maintain a good relationship with them. For example, companies can now use
Twitter to answer customers’ questions.
(3) Business networking: LinkedIn can be a good example of this use of social media.
Some social media platforms can help people build professional profiles, expand
their contacts, keep up with industry news and find business partners.
(4) Marketing: As mentioned previously, social media can serve as effective tools in
marketing activities. For example, Dove focused on YouTube for sharing its “Real
Beauty Sketches” marketing campaign to raise brand awareness and increase
product sales.
(5) Entertainment: People use social media for entertainment materials, including
photos, music, videos, and games.
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Social media are welcomed and widely accepted in the daily lives of millions
of people and countless organizations. In 2015, social media platforms such as
Facebook, Twitter, YouTube and LinkedIn are almost universally known. Facebook
has more than 500 million users; Twitter has more than 100 million, and LinkedIn has
more than 75 million. Roughly 64 percent of adults in the United States use Facebook,
47 percent of whom also consider Facebook to be their primary source for news
(Lacombe 2010). In corporate America, 77 percent of Fortune 500 companies have a
Twitter account, 70 percent have a Facebook presence and 69 percent maintain a
YouTube channel (Slegg 2013).

4. Platforms of Social Media
Kaplan and Haenlein (2009) have divided social media platforms into six
categories that fall under two dimensions: Social Presence/Media Richness and
Self-presentation/Self-disclosure.
(1) Collaborative Projects: This category enables “the joint and simultaneous creation
of content by many end-users” (Kaplan and Haenlein 2009). For example:
Wikipedia…
(2) Blogs: These can best be referenced as the “social media equivalent of personal
web pages,” (Kaplan and Haenlein, 2009) which cover an infinite number of
topics and build the interaction between the blogger and other readers through
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comments. For example: Business Insider, Mashable, Seeking Alpha and many
other news sites all began as simple sites that allowed individuals to document and
share their interests in topics like new technology products and trends.
(3) Content Communities: This category of social media focuses on sharing unique
media content among users, such as photography on Flickr or Instagram, videos
on YouTube or educational PowerPoint presentations on SlideShare.
(4) Social Networking Sites: Perhaps the best known category, thanks to websites like
Facebook, users can connect by creating personal profiles, inviting friends to join
their network, sharing photos and sending instant messages between one other.
Today, Facebook even allows you to invite users to play online games and send
them Starbucks gift cards.
(5) Virtual Gaming Communities: This group of social media users prefer to interact
with each other in a virtual world and share common interests in gaming, virtual
reality and creating online personas with personalized avatars. Popular gaming
franchises like “World of Warcraft” and EverQuest have created counter-culture
social media communities where people often prefer to keep their real identities
hidden.
(6) Virtual Social Worlds: Inhabitants of social media in this category do things that
are possible in real life and interact with each other by creating profiles. For
example: Second Life.

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5. Regulatory and Legal Environment of Social Media
Due to the pervasiveness of social media in a wide-range of activities in
people’s study, work and daily lives, social media communication activities are
regulated by different codes, laws and regulations, and different organizations in
different industries. The following are some examples:
(1) The Health Insurance Portability and Accountability Act (HIPAA) Privacy
Rule: This rule protects the privacy of patients’ health information. It is against the
rule that people work in the healthcare industry (such as hospitals, doctor’s offices
and clinics) share patients’ information on social media, for example, a photo with a
patient inside, or a tweet that could identify someone that visited the hospital (Porcaro
2011). Civil money penalties and criminal penalties may be imposed for a failure to
comply with a requirement of the Privacy Rule (U.S Department of Health & Human
Services, n.d.)
(2) Financial Industry Regulatory Authority (FINRA): Before a financial firm
or its representative communicates on social media, the firm or the representative
should ensure the communication will be recorded. The firm should also adopt
policies to ensure the associated person who communicates on social media for
business purposes will be supervised by the company and the person has the
necessary training and background for the that business communication (Porcaro
2011). Penalties and fines can be levied due to the failure of the compliance (Ricciuti
2012).
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(3) Sarbanes-Oxley Act (SOX): A public company should update its financial
information on social media to reflect material changes in financial conditions and
operations in a timely manner. Moreover, if the public company has not published its
financial information in a press release, it should not disclose that information on its
social networking sites (Porcaro 2011). The SOX Act imposes hefty fines and up to
20-year imprisonment for provision violations (Murray, n.d.).
(4) U.S. Copyright Statute: Under the fair use doctrine of the U.S. copyright
statute, only the owner of a copyright has the right to authorize its usage in other
works, unless the works are in the public domain, including scholarly reports, news
reporting, commentary, among others (Porcaro 2011). Therefore, content on social
media, such as images and photographs, should be used carefully to avoid infringing
the copyright of the owner, or the user should ascertain with evidence that the image
or photograph is actually in the public domain (Lustigman and Anand 2014).
Copyright infringement can result in both civil and criminal penalties including fines
and imprisonment (Bloomsburg University of Pennsylvania, n.d.).
6. Macro Trends of Social Media
Over time, the usage of different social media platforms will grow or diminish
to different extents. According to Dave Chaffey (2014), the results of a survey
conducted by the Global Web Index in 2013 shows that from the second to the fourth
quarter of 2013, the active usage of Instagram increased by the largest percentage
among the top 20 social platforms, followed by Reddit, LinkedIn and Tencent Weibo.
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The active usage of YouTube, Facebook and Myspace had declined, with Myspace
declining by the largest percentage. The result of the survey can be shown in a graph
as following:
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Exhibit B: Changes in Active Usage of Top 20 Social Platforms from Q2 to Q4, 2013

Source: Global Web Index 2013
The Pew Research Center (2014) discloses more trends on social media use
from its survey results. For example, (1) while Facebook’s growth has slowed, its
users’ engagement level with the platform has increased. (2) 53 percent of
Internet-using young adults ages from 18 to 29 use Instagram. Among them, 49
percent use it everyday. (3) 42 percent of female Internet users are on Pinterest,
compared to 13 percent of male users. (4) The number of multi-platform users has
risen: the percentage of online adults who use more than two social media sites has
increased by 10 percent from the year 2013. (5) The percentage of social networking
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adult users has risen steadily over time, with the percentage of senior users aged 65
and over growing over 50 percent for the first time in 2014 (Duggan et al. 2014).
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CHAPTER THREE: THE USES OF SOCIAL MEDIA IN INVESTOR
COMMUNICATIONS AND STAKEHOLDERS’ ATTITUDES TOWARD
THEM
I. History and Key Developments
As mentioned in previous sections, due to the SEC’s strict regulation of
material nonpublic information disclosure and the serious consequences that can
occur if the regulations are violated, IR professionals have been cautious in selecting
the channels through which critical information can be disclosed. This may be one of
the biggest challenges in the adoption of social media in Investor Communications.
However, given the wide acceptance and use of the Internet and social media
in different industries, the SEC has made revisions to Regulation FD depending upon
various circumstances that reflect the change in the SEC’s attitude toward the use of
social media in Investor Communications.
In August 2008, the SEC published “Commission Guidance on the Use of
Company Websites” to address the circumstances under which information posted on
an issuer’s website would be considered “public” by evaluating (1) whether the
information satisfies Regulation FD’s “public disclosure” requirement and (2) how it
would apply to the subsequent disclosure of public information (Lynn and Pinedo
2015, 6).
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In 2002, Netflix’s CEO Reed Hastings posted that the company’s monthly
online viewing, which is a key indicator of a company’s performance in entertainment
industry, had exceeded one billion hours for the first time on his personal Facebook
page, not the company’s website or other official information disclosure channels; it
was until 2013 that the SEC approved that social media can be used to disclose key
information in compliance with Regulation FD if certain requirements are met and
with primary guidelines for the use of social media in Investor Communications.
According to Birnbach, Cronan, Haddad, and Jones’s (2013) interpretation,
companies must alert their investors about which social media platforms will be used
to disseminate key information, and there should be no limitation on investors’ access
to these platforms. At the same time, the SEC has further warned that an individual
corporate officer’s personal social media site is unlikely to qualify as an acceptable
method of disclosure if no notice is given in advance to investors that the social media
site may be used for key information disclosure purposes (U.S. SEC 2013).
Since 2013, companies have been using social media conservatively and
cautiously for Investor Communication purposes while still employing some
traditional disclosure channels, such as press releases, wire services, and financial
reports. According to Robert C. White Jr. (2013), this may be due to the “ongoing
lack of specific official guidance and enforcement history of information disclosure
on social media,” and “the significant downside caused by Regulation FD if
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companies cannot handle the risky disclosure on social media properly.” (White
2013)
Moreover, the fundamental nature of social media and their high-speed
information dissemination and sharing, lead to the real possibility of serious
consequences and failures to Investor Communications, including false or inaccurate
information, social media misuse by employees, and cyber security problems. In a
volatile financial market, these risks may cause significant stock price fluctuations,
which in turn may harm shareholders’ interests (White 2013).
While companies may have been slow to utilize social media in Investor
Communication activities, the fact that federal guidance in this area exists at all gives
the use of social media an initial level of validation and credibility. In addition, there
is a good chance that the SEC’s new guidance will spur an interest in companies that
until now have been reluctant to do anything with social media to consider employing
these platforms as Investor Communication tools (White 2013). From here on out, the
potential influence and real practice of social media may soon be agreed upon and
supported.
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II. Key Findings regarding Practices and Effectiveness of Social Media in
Investor Communications from Secondary Research
To explore the use and effectiveness of social media in Investor
Communication practices, secondary research has been conducted on websites and
mainstream media. Three key findings have been summarized as follows:
Finding 1: Within the investment community, social media have been widely used as
conduits for investment information and considered important in helping make
investment decisions.
According to Dominic Jones (2010), the results of a survey conducted by the
Australasian Investor Relations Association (AIRA) and the Financial & Corporate
Relations (FCR) communications firm indicate that 20 percent of institutional
investors and sell-side analysts admit that information accessed through social media
channels has influenced their investment decisions (Jones 2010). In addition, 85
percent of financial services professionals under age 50 are utilizing social media and
58 percent of institutional investors and sell-side analysts in the U.S. and Europe
believe that “new media will become more important in helping them make
investment decisions” (Jones 2010). Another study conducted by Q4 Web Systems
(2013) shows that 72 percent of the 890 sample public companies use Twitter to share
investor-related material, a nine percent increase from 2012 (Joyce 2013, 6).
There appear to be three main reasons that social media are growing in
acceptance among the investment community: (1) social media have the ability to
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publish breaking news and update real-time information instantly, enabling investors
and those who advise them to make timely investment decisions; (2) social media
allow for the widest possible range of participants in the financial community to
engage in direct dialogue and share their opinions, which can help them make sounder
investment decisions; and (3) the information format on social media, such as
Twitter’s 140-character limit per post, makes the information easier to read, forward,
and share.
Finding 2: The actual use of social media in Investor Communications is not
consistently applied around the world.
According to a survey conducted by the Investor Relations Professionals
Association Singapore (IRPAS) and Singapore Management University (SMU)
(2013), only four percent of 91 SGX-listed companies in Singapore surveyed
frequently tap social media as means to engage investors (Chan 2013). However, the
results of a survey conducted by NIRI and the Corbin Perception Group (2013)
indicate that almost 28 percent of Investor Relations professionals in the U.S. use
social media for their work.
From the author’s observation, the reason for such variance in practice is
probably due to different cultural sensitivities in addition to regulatory considerations.
For example, the conservative attitude of Asian IR practitioners toward the use of
social media may be the direct result of a more conservative culture and psychology
in Asia countries with respect to expressing and sharing financial opinions online.
Differences in regulations, such as the SEC’s approval of information disclosure via
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social media and China’s limiting access to certain mainstream social media platforms,
could also contribute to these global trends.
Finding 3: CEOs and senior management still struggle with using social media for
Investor Communications.
This observation is supported by a 2013 study conducted by CEO.com that
indicates that only 7.6 percent of chief executive officers (CEOs) are on Facebook,
1.8 percent use Twitter, and 70 percent do not use social media at all. As of
September 2013, Warren Buffet has posted only three tweets, none of which pertained
to investor relations or financial disclosures (CEO.com 2013, 2).
In the author’s opinion, this phenomenon occurs because (1) the top
management of corporations are usually experts in their field and thus tend to regard
certain specialized and expert sources of investment information as more reliable; (2)
the credibility of information on social media is likely to be unbalanced as a result of
mixed information sources and agendas; and (3) social media engagement entails
risks because of the inability to control information. Since top management’s opinions
are likely to affect the reputation of their companies and the interests of investment
community members, they need to obtain information carefully and express opinions
cautiously through more official and reliable communication channels.

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III. Key Findings regarding Practices and Effectiveness of Social Media in
Investor Communications from Primary Research
To further explore the practices and effectiveness of social media in Investor
Communication activities, the author conducted primary research, including three
interviews and a content analysis on this topic. Following is a summary of the
findings of that research.
Finding 4: The use of social media for Investor Communications has not been widely
adopted by bankers and the banking industry in particular.
Investment bankers do not rely on social media when making investment
decisions. Emily Wang (2014), Senior Vice President (SVP), Director of Marketing
and Community Development at East West Bank, shared her view of this
phenomenon in an interview, stating that bankers usually do not use social media to
read news and gather information about the market and industry for investment
decision-making. Instead, bankers prefer more credible sources, such as reliable
financial websites (The Wall Street Journal and Bloomberg) and professional writers.
At the same time, banks tend to hold a more conservative attitude regarding
the use of social media in their own Investor Communication activities. Wang
explained, “At East West Bank, we are not ready to use social media because it is
time-consuming. For example, if you post something at some time, people will
respond, and you then have to make appropriate responses. So you must understand
the undertaking.” Wang believes that, if a company decides to use social media for
Investor Communications, it should build up a team dedicated to this area to monitor
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and respond to shareholders in a timely manner, which is time consuming and may
lead to increased labor, IT support, and other costs. Moreover, if handled improperly,
posting on social media may backfire on the company because it is difficult to predict
or control people’s reactions on social media. “Social media to some extent is a
Pandora’s box. If you are not ready, don’t open it,” says Wang.
From the author’s perspective, the reasons for this phenomenon may include
the following: (1) the banking industry must pay especially close attention to the
accuracy of published information because of the higher frequency of investment
activities and larger effects they can have on the investment community; (2) because
of the banking industry’s less-than-stellar reputation as robber barons stealing money
from people during an economic downturn and its historically conservative
background, its online behaviors undoubtedly will attract a great deal of attention and
are more likely to generate heat on social media; and (3) because there is less control
over information on social media, information commented on and shared by a variety
of users may lead to misunderstanding and misinterpretation or even backfire.
Therefore, the banking industry tends to hold a more conservative attitude toward the
use of social media in Investor Communications.
Finding 5: IR professionals use social media to maintain a company’s market
position and prevent problems.
This phenomenon was identified by Chen Chen, Senior Consultant at
Citigate Dewe Rogerson’s Beijing office, in an interview conducted in November
2014.
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According to Chen (2014), the goal of IR professionals is to ensure that their
companies deliver stable and good performance in the capital market. Therefore, they
usually keep a close eye on social media content that is relevant to their company and
provide necessary suggestions to avoid any regulatory or other troubles that may
affect the companies’ position in the capital market (such as stock prices, market
value, credit rating, etc.). “They [IR professionals] are more like advisors behind the
social media tools instead of the frontline of social media communicators,” said Chen.
That social media are used at all in Investor Communications may be a result
of its effectiveness in enabling timely and direct feedback from the investment
community and the public. By monitoring information on social media, companies are
able to develop a two-way interaction with their shareholders. Under this
circumstance, it is beneficial for the company to keep a close eye on influencers and
third parties in the financial community because their opinions may have larger
effects on shareholders’ perception on the company.
Finding 6: If the main investors of a company are institutional investors, the company
will probably pay less attention to the use of social media for Investor
Communications.
Wang (2014) believes that whether or not a company is willing to utilize
social media depends on whom their main shareholders are. If institutional
shareholders comprise a larger proportion, companies are less likely to use social
media because most institutional shareholders prefer traditional sources of
information disclosure and communicate directly with the top management.
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With this viewpoint in mind, the author further explores the distinctions in
Investor Communications between institutional shareholders and individual
shareholders. According to Steven Bragg (2010, 153), institutional investors are more
interested in a company’s operational and financial performance. They prefer to read
analyst reports or may expect tailored one-on-one meetings and conference calls
where they can obtain the latest information and ask questions directly to the top
management of the company. Moreover, institutional investors’ investment strategies
are stricter. For example, some of them invest in stock indexes, some do not invest in
micro-cap companies and others do not buy stocks below a certain price point.
Therefore, if institutional investors with one of the above investment strategies
comprise a large proportion of a company’s shareholder base, chances are high that
the effectiveness of social media in investor communication activities will be smaller
because these institutional investors’ investment decisions are difficult to change.
However, if a company wants to engage in conversations with institutional investors
who can choose company stocks by themselves, it is beneficial for the company to use
social media to convey information that will affect their investment decisions, such as
the execution of corporate strategies, management credibility, innovativeness, etc.
In contrast, individual investors are affected by social media content to a
larger extent because most of them do not have much professional research support
and are likely to make investment decisions based on other people’s suggestions and
recommendations. Some of the potential investors of a consumer products company
can even be the owners of the company’s products (Bragg 2010, 158). Therefore, for
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individual investors, marketing-oriented Investor Communication tools might be more
effective. Social media’s highly interactive features and powerful effectiveness in
marketing qualify social media platforms as effective tools to improve individual
shareholders’ favor and loyalty to the company. Furthermore, social media can be
used with influencers and third parties in the financial community, whose
recommendations and opinions have great influence on individual investors’
decisions.
Therefore, before a company steps into the social media arena, it should
conduct a thorough analysis of what influences its main shareholders’ investment
decisions. The extent of the use and effectiveness of social media in Investor
Communications depends on the balancing of these considerations.

1. Content Analysis: How Other Companies in Different Industries Feel about
the Use of Social Media in Investor Communications Activities
Since there are differences in attitudes regarding the use of social media in
Investor Communications, to determine the degree to which social media have been
accepted and supported by companies for Investor Communication purposes, a
content analysis was conducted in January 2015 to determine the overall tone and
attitude of subject companies in sample articles toward the use of social media in
Investor Communication activities.

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(1) Goal
The study is designed to assess the overall attitude regarding the use of social
media in Investor Communication activities at companies in different industries.

(2) Methods and procedures
In this study, 56 articles were selected from the Major World Publications
category of the LexisNexis Academic Database, ranked by relevance to two search
terms: “social media” and “investor relations.” From the initial sort, six of the articles
were discarded because that they contain the two key words without specific linkage
or relevance to the study goal. This ensures that the study will yield reliable data on
the attitudes of subject companies in sample articles regarding the use of social media
in Investor Communications.
The industry category (based on the industry categorization of Lexis-Nexis) of
a sample article is determined by the industry of the subject company in the article.
For example, one of the sample articles, published by India Retail News, states that
American Restaurant Concepts, Inc. has retained Q4 Web Systems to bolster its
online Investor Relations capabilities (“American Restaurant” 2012). The subject
company in this sample article is American Restaurant Concepts, Inc., and the subject
article was thus categorized into the “Food Service” industry. For articles that
mention more than one company, the company mentioned the most times was
regarded as the subject company. For example, in another article, two subjects, FTI
Consulting, Inc. and U.S. SEC, were both mentioned as the article’s subjects. FTI
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Consulting, Inc. was mentioned five times in the article, while U.S. SEC was
mentioned once. Therefore, FTI Consulting, Inc. was identified as the subject
company of the sample article.
General attitudes toward the use of social media by subject companies are
recorded, along with the sample articles’ publication dates, company or brand names
mentioned in the articles, article sources, and headlines. For conglomerates or
companies conducting business in different industries, the industry that accounts for
the highest percentage of the company’s business distribution is recorded.
The attitudes toward the use of social media in Investor Communications for
the subject companies mentioned in sample articles were categorized as “positive,”
“negative,” or “unclear.” If a company addresses the use of social media in its
Investor Communication activities or states more generally that other companies
should use social media in their IR activities, the attitude of the company toward the
use of social media is categorized as “positive” and recorded as “P.” Likewise, if a
subject company mentions its rejection of social media in Investor Communications
or states more generally that other companies should not use social media in their IR
activities, the attitude of the subject company is categorized as “negative” and
recorded as “N.” Finally, if a subject company addresses its own use of social media
or in reference to other companies’ investor relations communication but provides no
opinion about whether social media should be utilized in Investor Communications or
not, the attitude of the sample company is categorized as “unclear” and recorded as
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“N/A.” After all the information was recorded (see Appendix 4), charts were made
reflecting different conditions.

(3) Findings
The author explored the attitudes of companies regarding their own use of
social media or other companies’ Investor Communication activities. For example,
one of the articles addresses Netflix’s disclosure of key data via social media. The
subject company is Netflix, and it was categorized into the “Media & Publishing”
industry. Since Netflix utilizes social media platforms as disclosure channels, its
attitude toward the use of social media in Investor Communications is positive. The
author then recorded that one article in the media and publishing industry holds a
positive attitude to social media and put “Media & Publishing” and a “P” on the code
list. Using this method, the author recorded the attitudes indicated in the 50 sample
articles and found that, among the 50 sample articles, 42 hold a positive attitude
toward the application of social media in Investor Communication activities, six of
them hold a negative attitude, and the attitudes of the other two articles are unclear.
The distribution of sample companies’ different attitudes about social media is shown
in the pie chart in Exhibit C.
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Exhibit C: Distribution of Sample Companies’ Attitudes about Social Media

This result demonstrates the following finding:
Finding 7: Most of the subject companies agree to some extent with the use of social
media in their own or other companies’ Investor Communication activities.
The overall affirmative attitude toward the use of social media may result
from (1) their positive effectiveness in Investor Communication activities, including
the capacity for timely information updating and direct feedback from shareholders
and (2) the fact that the search terms included “social media,” which might screen out
some companies that neither have a clear attitude toward social media nor use social
media in their Investor Communication activities.
The author then focused on the companies that displayed positive attitudes
toward the application of social media in their own and other companies’ Investor
Communication activities. The results of the study in Exhibit D show that the media
and publishing industry and communication categories are still ranked first and
second in the list, respectively.
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Exhibit D: Distribution of Industries of Companies with a Positive Attitude toward
Social Media

The following are sample quotes for each industry:
(1) Media and publishing industry:
On September 22, 2014, Pandora Media, Inc. wrote,
“Its [Pandora Media, Inc.’s] business and its results of operations may also be
announced by posts on the following channels:
The Pandora LinkedIn Page (https://www.linkedin.com/company/pandora)
The Pandora for Business Twitter Handle (https://twitter.com/pandorapulse)”
(“Form 8-K: Pandora” 2014).
(2) Communications industry:
On October 16, 2014, Iridium Communications Inc. wrote,
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“In light of SEC guidance regarding the use of social media channels to
announce material information to investors, we are notifying investors, the media and
others interested in our company that in the future we might choose to communicate
material information via social media channels, and it is possible that information we
post on social media from time to time could be deemed to be material information”
(“FORM 8-K: Iridium Communications” 2014).
This result led to the following finding:
Finding 8: The media and publishing and communication industries are more likely
to hold a supportive attitude toward the use of social media in Investor
Communications.
In the author’s opinion, this finding may result from the fact that (1) in the
Media & Publishing and Communication industries, online exposure and social media
engagement can be important indicators of companies’ operational performance and
that (2) companies in these two industries are more experienced and expert in utilizing
social media for communication activities.
Notably, many of the sample articles in these two industries are Form 8-K
reports, responding to the SEC’s approval of the use of social media for key
information disclosure. Thus, regulatory approval and guidance may also contribute
to the overall positive attitude toward the use of social media in these two industries.
The author then focused on the companies that have a negative attitude toward
the application of social media in their own investor communication activities or
object to other companies’ use of them. When a company’s attitude about social
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media is identified as negative, an “N” was recorded after the company’s industry
category in the code list. In this way, the author found that six of the 50 articles have a
negative view of the use of social media in Investor Communications. The industry
distribution of those six companies is shown in the pie chart shown in Exhibit E.

Exhibit E: Distribution of Industries of Companies with a Negative Attitude toward
Social Media

As the chart shows, the Banking and Finance industry category represents
five-sixth of the total sample size, and media and publishing represents one-sixth.
Concerning the banking and finance industry, on July 10, 2013, The Evening
Standard (London, England) wrote, “A staggering 78% of those [wealth managers]
polled see social media channels as time-consuming, and offering limited value in the
context of their work” (“Research Gets” 2014). However, these are highly
sophisticated investment managers who are different from individual investors, and
their comments are not about the use of social media by their own companies.
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This result supports Finding 4, that the banking and finance industry might
hold a more conservative attitude toward the application of social medias in IR
communication. Perceived reasons for this phenomenon were mentioned previously.
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IV. Other Contributing Factors to the Practices and Effectiveness of Social
Media in Investor Communications
There are other factors that contribute to the practices and effectiveness of
social media in Investor Communication activities.
First, corporate culture and executive personalities can affect how
progressively a company utilizes social media in its Investor Communications
practices. Regarding this contributor, Netflix’s case can serve as a good example. On
July 3, 2012, Netflix’s CEO Reed Hastings (2012) posted on his personal Facebook
page the following information: “Congrats to Ted Sarados, and his amazing content
licensing team. Netflix monthly viewing exceeded 1 billion hours for the first time
ever in June… Keep going, Ted, we need even more.”
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Exhibit F: Post (Hastings 2012) from Reed Hastings’s Facebook Page

Source: Hastings 2012
As a result of the post, on December 6, 2012, Netflix and Hastings received a
Wells Notice from the SEC, warning that it might file civil claims because of the
CEO’s selective sharing of material information. That same day, Hastings (2012)
posted another announcement on Facebook explaining his opinion on this issue: “First,
we think posting to over 200,000 people is very public... Second…we think the fact of
1 billion hours of viewing in June was not ‘material’ to investors.”
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Exhibit G: Post (Hastings 2012) from Reed Hastings’s Facebook Page

Source: Hastings 2012
On April 2, 2013, the SEC gave Netflix and Hastings a pass and sidestepped
the issue. On April 10, 2013, Netflix filed a Form 8-K report, stating that it will use
social media as a complementary communication platform to announce IR
information. Exhibit I contains a timeline of the issue.
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Exhibit H: Timeline of Netflix’s Facebook Post Issue

Netflix and Hastings did not notify investors and the public before the original
Facebook announcement, nor did the company file a Form 8-K report or press release
after the first Facebook post. Neither Hastings nor Netflix had previously used a
Facebook page to announce company metrics, and, more importantly, “they had never
before taken steps to alert investors that Hastings’s personal Facebook page might be
used as a medium for communicating information about Netflix” (U.S. SEC, 2013)
because, at that time, there was no link to the CEO’s Facebook page on Netflix’s
Investor Relations website.
Reed Hastings’s abrupt Facebook announcement reflects his competitive yet
restless personality and reputation as a CEO and Netflix’s corporate culture that
promotes free thinking and innovation. Netflix has completely disrupted the way we
view our entertainment content, and streaming movies and TV shows directly from
your computer or tablet has become commonplace. This extremely high level of
success, coupled with his “loose canon” persona, might make Hastings think he can
further push the limits of disclosing financial content without the accountability of
selective information disclosure.
1.!Jul.!3,!2012:!Reed!Hastings's!Facebook!!Post 2.!Dec.!6,!2012:!Wells!Notice!from!the!SEC 3.!Dec.!6,!2012:!Reed!Hastings’s!Facebook!Response 4.!Apr.!2,!2013:!The!SEC’s!Investigation!Report!
5.!Apr.!10,!2013:!NetPlix’s!Form!8SK!
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After the SEC’s approval, Netflix’s subsequent progressive use of social
media for Investor Communications reflects how the corporate culture and the
personality of leaders can contribute to the use and effectiveness of social media in a
company’s Investor Communications practices.
Other factors, such as peer influence and industry features, may also affect the
use of social media in communicating with a company’s investors. For example,
according to Wang (2014), companies in the fashion and food industries tend to
utilize social media more frequently for IR purposes because their products are so
visually driven, and it helps them maintain a trendy and relatable image among
shareholders, which can be achieved by social media’s highly interactive and
multi-media features. When one company starts to see great success from using social
media in practices, other companies in the same industry are also likely to follow. In
contrast, if a company’s peers generally hold a negative attitude toward the use of
social media in Investor Communications, chances are high that the company will
either consider their usage.

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V. Research Synthesis and Key Findings regarding the Practices and
Effectiveness of Social Media in Investor Communications
Based on the findings from secondary research and primary research described
above and perceived reasons for those findings, two summaries of key findings
regarding the use and effectiveness of social media in Investor Communications
respectively were developed.
1. The Use of Social Media in Investor Communications
With respect to the use of social media in Investor Communications, the
following findings emerged:
(1) Social media have been widely used as conduits for investment information
and considered important in helping investors make investment decisions.
However, they affect individual investors to a larger extent than institutional
shareholders in decision-making.
(2) The actual use of social media in Investor Communications is not consistently
applied around the world.
(3) Social media have not been widely accepted by the top management of
corporations for Investor Communication purposes.
(4) The use of social media for Investor Communications has not been
consistently applied in different industries.
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(5) Social media are used by IR professionals to maintain companies’ market
position and prevent trouble.
(6) Social media are used less by companies that have more institutional
shareholders.
(7) Most of the subject companies support their own use of social media or in
other companies’ Investor Communication activities.

2. The Effectiveness of Social Media in Investor Communications
Regarding the effectiveness of social media use in communicating with
investors, the following findings emerged:
(1) Social media have the ability to publish breaking news and provide real-time
information instantly.
(2) Social media allow a wide range of participants in the financial community to
engage in direct dialogues and share their opinions.
(3) The brevity of information presented on social media makes it easier to read,
forward, and share news.
(4) The credibility of information on social media is unbalanced because of mixed
information sources.
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(5) Social media entail risks of misunderstanding and misinterpretation because
there is less control over information.
(6) Social media enable timely and direct feedback from the investment
community and the public and can be used with influencers and third parties.
Based on the summary of the effectiveness of social media in Investor
Communication activities, it is clear that social media have both strengths and
weaknesses when used for Investor Communication purposes, so they bring both
opportunities and risks to Investor Communication activities. In the author’s opinion,
the extent to which social media are used in specific Investor Communication
activities depends on balancing the opportunities and risks that social media could
bring. The strengths and weaknesses of social media in Investor Communications will
be thoroughly analyzed in the fourth part of this thesis.

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CHAPTER FOUR: ANALYSIS OF THE USES AND EFFECTIVENESS OF
SOCIAL MEDIA IN INVESTOR COMMUNICATIONS
Compared to traditional platforms of Investor Communication such as
corporate websites, conference calls and SEC filings, social media have their unique
strengths and weaknesses, and thus bring both opportunities and risks to Investor
Communications. This section will provide a thorough analysis about the strengths
and weaknesses of social media, as well as their effective and ineffective practices in
Investor Communication activities.

I. Strengths of Social Media
1. Speed
Information on social media is communicated in real-time and with speed.
Compared to the time it takes to prepare for releasing annual reports, holding
shareholder conference calls, and distributing press releases, social media provide
real-time, instantaneous updates of investment information. For example, Apple Inc.
might have posted its latest IR information on its website on January 22, 2015 (Apple
2015), but we have no idea of the level of engagement. In contrast, on StockTwits,
according to the author’s observation, there were already 43 IR-related posts
including the Cashtag “$AAPL” from 3 p.m. to 4 p.m. on March 17, 2015
(StockTwits 2015).

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2. Two-way Interaction
Information on social media is communicated in a two-way format.
Traditional Investor Communications is conducted one-way from companies to
shareholders. Most public companies thus have no opportunities to engage with
shareholders directly and frequently. Social media, on the other hand, provide
shareholders an opportunity to express their opinions directly to companies and
therefore encourage interactive dialogues between investment members on a large
scale.

3. Brevity
Information on social media is usually in concise and plain format. Investor
Communications is a kind of strategic communication by its nature. The purpose of
an IR department is to get the IR-related information out to shareholders clearly,
efficiently and quickly. However, because of the scrutiny on how accurate, credible
and compliant the information is, the content that is typically put out via traditional
communication channels uses highly specialized vernacular in finance, accounting
and law, expressed in formal and complicated language. In contrast, information on
social media is usually much more concise and expressed in plain language. This
brevity can improve investors’ understanding of the company’s financial performance
and make it easier for investment community members to share investment
information with each other.

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II. Weaknesses of Social Media
1. Unbalanced Credibility
Information on social media is created, shared and spread by a wide range of
investment community participants. In traditional Investor Communications,
professionals such as IR practitioners, lawyers, analysts and financial media draft
investment information with higher credibility and accuracy. In contrast, investment
information on social media can be created, edited, commented and shared by a wide
range of users with different levels of expertise and different kinds of experience.
Therefore, the credibility of information on social media may be affected due to
mixed information sources.

2. Less Control over Messages
On social media, content creators are less able to control or predict the
information dissemination direction. In traditional Investor Communication,
investment information is mainly created, affected and controlled by professionals
and companies and received passively by investors and the public. Web 2.0 and
user-generated content on social media, however, brings new challenges to IR
professionals, who formerly were the only ones who controlled how IR information
was created, commented upon, and shared through traditional Investor
Communications channels. With information disseminated and shared at such a high
speed now, it is hard to predict or control how IR information is communicated on
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social media. Even worse, sometimes information generated by the IR department of
a company may backfire.

3. Increased Costs
It is time consuming to monitor and respond to all the shareholders’ feedback
all the time, and companies incur considerable personnel, IT support and training
costs in setting up and maintaining a social media presence. For example, it could cost
an average of $2,000 to $4,000 a month to launch a new Twitter account, with setup
and outsourced content creation completed (The Content Factory 2011). There may
also be legal consulting costs to ensure that investment information on social media is
communicated under legal permission. Moreover, it is hard to measure the return on
these costs. Therefore, the use of social media in IR communication may lead to
increased costs yet generate hard-to-measure returns on these investments.

Due to their strengths and weaknesses, social media can bring both
opportunities and risks to Investor Communication activities. The following section
analyzes the effective and ineffective practices of social media in Investor
Communications.

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III. Effective and Appropriate Practices of Social Media in Investor
Communications
1. Update Timely Investment Information
In a volatile or emerging market, timely and accurate information is vital to
investors for their decision-making. Complementary to traditional information sources,
innovative social media tools such as companies’ Twitter accounts for investor
relations, Stocktwits and Motley Fool allow users to share timely and accurate
investment information to shareholders instantly, compared to traditional methods
where it might take hours or days to distribute a press release. In this way, from the
shareholders’ side, investors can have 24/7 access to information about the company’s
current financial performance; from the companies’ side, by helping investors make
timely and sound investment decisions, companies are able to reach the fair valuation
of their share.
For example, General Electric (GE) has a Twitter account (@GEReports)
dedicated to IR information disclosure that updates IR-related information on a daily
basis and publishes the company’s frequent interactions with financial media such as
the The Wall Street Journal. Through the Twitter account, investors could obtain
more comprehensive information in a multi-media context regarding GE’s financial
performance, especially during the intervals between publication of GE’s SEC filings
(KCSA 2013).
Similarly, Google uses an investor relations Google + channel to share
investment news; Pfizer posts the company’s investor relations presentations through
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58
a Slide Share account, and LinkedIn also utilizes a Twitter account to update material
investment information (KCSA 2013). These are all effective applications of social
media when used in Investor Communications.

2. Monitor Shareholders’ Feedback
By reading and monitoring articles and comments on real-time social
engagement tools such as Facebook and Twitter, IR practitioners are able to have a
better understanding of (1) what kind of issues their stakeholders find interesting or
troubling, (2) shareholders’ opinions about the companies’ performances, and (3) how
the companies’ messaging has been affecting shareholders’ investment decisions. In
this way, based on shareholders’ feedback gathered from social media, companies are
able to adjust their shareholder policies to meet shareholders’ real needs and therefore
prevent potential crisis and maintain companies’ market position. As Chen explained
in the interview (2014), “It is always good to monitor relevant news and information
on social media platforms so as to take proper responses and preparation in a timely
manner before the news or information may threaten the company’s stock prices and
general performance.”
From the shareholders’ side, social media provide them another opportunity to
get their questions answered and maximize their interests by engaging with
companies efficiently. Moreover, social media can help institutional shareholders find
new investment targets. For example, Chris DeMuth, portfolio manager at Rangeley
Capital, developed potential investment targets by analyzing the sentiments of large
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59
number of blogs and social media channels mentioning companies’ names (Walsh
2013). Therefore, as a complement to traditional communication methods, social
media can create and strengthen the connection between companies and stakeholders
and benefit both sides through Investor Communication activities.

3. Utilize Influencers and Third Parties
In Web 2.0, every social media user can be a content creator. Through social
media, a company’s investment information can be spread and shared on a much
larger scale to audiences across the financial community. In this situation, some
financial influencers (for example, bankers, analysts, etc.) and third parties (financial
media, opinion leaders, influential bloggers, etc.) can lead or affect the direction and
tonality of investment information to a greater extent. Social media can be used by
companies to ally and cooperate with web-savvy influencers and third parties in order
to expand their exposure, increase their shareholder base, and improve their brand
perception. Shareholders can also utilize social media to make sounder investment
decisions based on credible influencers’ analysis and recommendations.
For example, before its Initial Public Offering (IPO), Chinese e-commerce
company Alibaba’s roadshow video was shared and forwarded by many financial
influencers, opinion leaders, and third-party content publishers on Weibo and Wechat,
two of the most popular social media platforms in China. As a financial influencer
and online opinion leader, Alibaba’s founder and chairman Jack Ma also posted
content about the company frequently on Weibo at that time, and every post was
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60
commented on and shared by millions of Weibo users. By utilizing influencers and
third parties, Alibaba has raised its awareness and expanded its shareholder base, thus
achieving successful Investor Communications (Sina Blog 2014).

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61
IV. Ineffective and Inappropriate Practices of Social Media in Investor
Communications
However, the use of social media can become ineffective and inappropriate for
both companies and shareholders under certain circumstances.
1. Use Social Media as the Only Source for Decision-making
Social media can update real-time investment information and help
shareholders make investment decisions. However, it is inappropriate and ineffective
to make investment decisions relying solely on social media. Due to the unbalanced
credibility and the brevity, information on social media may lead to misunderstanding
and misinterpretation (Aquila and Payne 2013). For example, if a company breaks up
its IR message into several tweets, it is possible that each tweet will be read separately
and re-tweeted. Compared to social media, information on traditional information
sources should be more credible and accurate because it is drafted by financial and
legal professionals and collaborated with details and evidences. Therefore, when
making investment decisions, it is beneficial for shareholders to use social media as
complements to traditional sources.

2. Disclose Material Information Inconsistently
With the SEC’s approval, many companies file Form 8-K reports to utilize
social media for key information disclosure. However, it is inappropriate for
companies to use too many disclosure channels or add or delete disclosure channels
without notice to shareholders because this practice may lead to selective disclosure
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62
and thus harm shareholders’ interests. For example, Netflix filed to use five social
media platforms for key information disclosure, including (1) The Netflix Blog, (2)
The Netflix Tech Blog, (3) The Netflix Facebook Page, (4) The Netflix Twitter Feed,
and (5) Reed Hastings’ Public Facebook Page (Netflix 2013). The company also
mentioned it reserves the right to add or delete communication channels “from time to
time” (Netflix 2013). In the author’s opinion, the list of Netflix’s possible social
media disclosure channels is too long, and according to its announcement, the
consistency of information disclosure cannot be guaranteed. Under this circumstance,
social media are not used effectively or inappropriately as disclosure channels.
Therefore, companies should take steps to ensure that material news is announced
across the same disclosure means consistently.

3. Publish Unbalanced Investment Information
It is inappropriate to use social media to publish unbalanced information or
comments in favor or against a certain stock or company. For example, Jenny Quyen
Ta, a financial advisor and the founder of California-based Titan Securities, used a
Twitter account that has more than 1,400 followers to tout the Advanced Micro
Devices (Ticker: AMD) stock, without disclosing that she and her family held more
than 100,000 AMD shares. For example, on December 15, 2009, Ta tweeted “Its
going 2 b a good Xmas & 2010! Ck out AMD! Like I have said, it should b @ least a
$10B co. which should b @ $ 15/shs. HappyTrading!” (Hanson 2011). In response to
these behaviors, the FINRA took disciplinary action against Ta, including “a fine of
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63
$10,000 and suspension from association with any FINRA member for a full year”
(Hanson 2011). In this case, social media have been used inappropriately in Investor
Communication.

So far, perceived strengths and weaknesses as well as appropriate and inappropriate
practices of social media in Investor Communication can be summarized in Exhibit J
as following:

Exhibit I: Perceived Strengths v. Weaknesses and Appropriate v. Inappropriate
Practices of Social Media
Strength Weakness
Social Media
Speed Unbalanced credibility
Two-way interaction Less control over messages
Brevity Increased costs
Appropriate Practices Inappropriate Practices
Practices
Update timely investment
information
Use as the only source for
decision-making
Monitor shareholders’ feedback
Disclose material information
inconsistently
Utilize influencers and third
parties
Publish unbalanced investment
information

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64
CHAPTER FIVE: CONCLUSION
Social media have fundamentally changed how information is crafted and
distributed online. With their unique strengths and weaknesses, social media bring
both opportunities and risks to Investor Communication, and have been used both
effectively and ineffectively in Investor Communications activities.
According to the findings from secondary and primary research, social media
have been used to different extents in the financial community, and different parties
have different attitudes about the use of social media in Investor Communications.
Regarding their effectiveness, on one hand, social media can help companies and
investors obtain timely financial information, build interactive engagement between
companies and their shareholders, and benefit the investment community when used
properly with influencers and third parties. On the other hand, social media can also
accelerate the spread of negative information, lead to misunderstanding and
misinterpretation, and increase various costs. Moreover, there are other factors
affecting the use and effective of social media in Investor Communication, for
example, corporate culture and top management’s personality, the proportion of
institutional and individual investors, the opinions of peer institutions, etc.
Based on the analysis of the evidence, the author argues that, even though
potentially risky, social media should not be avoided but used carefully as a
complement to traditional channels of Investor Communications. Moreover, to what
extent social media should be used in Investor Communications depends on the
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65
balancing of opportunities and risks the platforms can bring. The use of social media
in Investor Communications, if handled professionally and carefully, could achieve
timely, effective and interactive engagement between members of the investment
community, which in the long way should maximize both companies’ and investors’
interests.
As Sean O’Brien (2011) described, “public communication is a lot like
walking alongside the edge of a cliff. Despite the fears of falling over the cliff, the
benefits of social media far outweigh the risks. By establishing the right guardrails, it
can be a hugely rewarding journey” (O’Brien 2011).
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66
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or-ir-webinar/#sthash.whyL2nPa.dpuf.

Shalvey, Kevin. 2013. "Netflix Files To Disclose Key Data Via Social Media; Some
Investors May Object; Follows up Fast on SEC Report Saying Facebook,
Twitter “perfectly Suitable”." Investor's Business Daily, April 12. Accessed
October 23, 2014. LexisNexis Academic.

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Vigna, Paul. 2013. "SEC Clears Netflix’s Reed Hastings; Says Social Media’s OK for
Sharing." MarketBeat (blog), April 2. Accessed September 26, 2014.
http://blogs.wsj.com/marketbeat/2013/04/02/sec-clears-netflixs-reed-hastings-
says-social-medias-ok-for-sharing/.
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APPENDICES

Appendix 1: Chen Chen Interview Transcript

Interviewer: Mianmian Li
Interviewee: Chen Chen, Senior Consultant at Citigate Dewe Rogerson
Date of Interview: October 29, 2014
Location: Los Angeles, CA Email Interview

Mianmian Li: Question: According to your observation, what kind of social media
are IR agencies / IR department of companies using as communication channels to
investors, regulators and the public?

Chen Chen: Answer: IR professionals, either from agencies or IR department of
companies in Asia, do not usually communicate directly via social media channels
with investors, regulators and the public. Social media platforms is often managed by
the PR side. But given that IR professionals have to make sure their companies
deliver stable and good performance at the capital market, they usually keep a close
eye on social media contents related to the companies and provide necessary
suggestions to avoid any regulatory or other troubles that may affect the companies’
position in capital market (such as stock price, market value, credit rating, etc.) They
are more like advisors behind the social media tools instead of the frontline social
media communicators.
There is an exceptional situation when IR professionals keep good personal
relationship with certain group(s) of investors, regulators and the public, but that’s
usually a very casual way for communication and is not appropriate enough for
day-to-day work communication.

Mianmian Li: Question: As an IR professional, how do you think social
media? what are the positive and negative effects using social media as IR
communication channel could have to the company or agency? Is it a good idea to
communicate IR information on social media? How do you compare social media
with traditional communication channels such as press release and company website?

Chen Chen: Answer: Generally speaking, IR practices are still more conservative
and cautious about social media use than PR professionals. After all, one priority for
IR professionals is to make sure their companies are well understood by the key
audiences, namely the investors and analysts. Therefore, accuracy of the information
disseminated and credibility of the sources are crucial. Traditional channels, such as
press release, IR webpage, newsletter and announcement, can meet the above
requirements, because these channels are controlled in their hands.
In contrast, social media platforms, where anyone can share, modify and comment
information freely, do not seem to give enough control to IR professionals regarding
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77
how their information / message will be shared, modified and commented, which may
cause misinterpretation / misunderstanding to target audiences, not to mention that
listed companies may have quiet periods that they have to be very careful on the
messages delivering.
On the positive side, it is always good to monitor relevant news and information on
social media platforms so as to take proper responses and preparation in a timely
manner before the news / information may threaten the company’s stock prices and
general performance.
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78
Appendix 2: Keemia Ferasat Interview Transcript

Interviewer: Mianmian Li
Interviewee: Keemia Ferasat, Investor Relations Executive at PondelWilkinson
Date of Interview: October 18, 2014
Location: Los Angeles, CA Email Interview

Mianmian Li: Question: According to your observation, what kind of social media
are IR agencies/communication department of companies using as their IR
communication channels

Keemia Ferasat: Answer: In April 2013, the SEC deemed that social media sites
like were appropriate means to release investor information as long as it complied
with Regulation Fair Disclosure. Regarding the channels to use, I believe the most
advantageous channels to use for publicly traded companies are Twitter, YouTube
and Corporate Blogs. These channels all offer the user (IR team of company) to
control the content being shared. Twitter give everyone the power to create and share
ideas and information instantly, without barriers - however, the important thing to
remember here is that when information is shared on social, it must always comply
with Reg FD.

Mianmian Li: Question: As an IR professional, what do you think of social media?
do you think it is a good idea to communicate IR information on social media? How
do you compare social media with traditional communication channels such as press
release, financial reports and company website?

Keemia Ferasat: Answer: In today's communications landscape, I believe that social
media is a fully integrated, necessary element to any communications strategy. That
being said, IR professional need to carefully curate their networks. The internet, and
social media in particular, is a space where the consumer has the power to speak what
they want, thus if a fallacious comment is made on a clients social network, an IR
professional needs to must be capable to responding to the commenter instantly,
otherwise one comment could very quickly go viral, even to the point of affecting the
marketshare.Social media is defined by its speed, its newsybyte format, and its
potential for cascade (negative) effects. These attributes have changed the way we
think about strategeic communication, and have begun to open up new avenues for
investor relations. Today, larger companies have started normalizing the use of social
media channels for large announcements, where Twitter and Facebook are are used to
draw in the target audience and signify transparency to current shareholders. That
being said, however, a press release is still the most accepted and transparent of
communications for releasing corporate communications news.
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79
Appendix 3: Emily Wang Interview Transcript

Interviewer: Mianmian Li
Interviewee: Emily Wang, SVP, Director of Marketing and Community Development
Date of Interview: November 26, 2014
Location: Pasadena, CA

Mianmian Li: Question: Do you read news/information on social media? Do you
think it is useful and trustworthy?

Emily Wang: Answer: I don’t read financial news on social media but I read online
to get general information or financial performance of our competitors. The way of
CFOs getting information is different from our Marketing department. CFOs only
care about numbers, and we pay attention to other information such as activities and
products of other companies. There are new products promoted every season in
consumer product area but there is hardly innovation in financial product area. So
there are big differences between different industries.
As far as I know, there is little information about Investor Relations on social media
such as earnings release. People usually don’t comment on the performance of
companies. We will read credible websites such as Yahoo.com. Based on the
credibility of the official websites like Bloomberg news and Wall Street Journal, we
decide our reliability to those information resources. For our industry, credibility is
the number one thing. We won’t read information on websites like Street.com. There
are big differences between writers, whether they are neutral. Some of the content are
comments by investment bankers or institutional fund mangers, and we will stick to
some reliable writers. The credibility of analysts takes a great part. You will have a
clear understanding of the profession level of the analyst asking questions during
conference calls. Some of them ask shallow questions and others ask real good
questions, you can tell them apart quickly. Our real investors, those holding a large
percent of our shares, won’t listen to our conference calls but will call our CFO
directly because they are our bosses.
Internet is the quickest information resource now, but we care about the credibility of
information and writers

Mianmian Li: Question: What are the current communication platforms at East
West Bank? Which part plays the most important role in Communication/IR
Department? Is that media relations? conference calls? SEC filings?

Emily Wang: Answer: We use Businesswire, and we will also distribute press
releases to familiar local media from our media network.
They are all important for different purposes.

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80
Mianmian Li Question: What is your attitude to social media? Do you think is it
important in investor relations?

Emily Wang: Answer: Companies, including IR side will learn how to utilize social
media platform to spread information but that process need time. If the main investors
of a company are individual investors, they must utilize social media because this is
probably the most immediate way to create engagement. Sometimes for the image
purpose you want to make your company trendier. If you are in fashion or food
industry, which are targeting to gen-y or gen-z, you need to let them feel you are not
boring. Social media is not avoidable but is a double-edged sword.

Mianmian Li: Question: Are you (East West Bank) going to apply social media in
your business? Why?

Emily Wang: Answer: At East West Bank, we are conservative but not stubborn. we
want to make full preparation to use social media but we are still waiting. We decided
not to use Facebook because firstly, we cannot handle that, and secondly, the main
users of Facebook are not our customers. So the downside is bigger than the upside.
The timing is not right so we won’t touch Facebook area. Depending on whether we
are going to have event, we will consider about that later.
The reasons we use LinkedIn are we are going to recruit excellent people and want to
let people know what is our corporate culture, what kind of corporate value do we
care and what industries do we focus on. In order to make our recruiting process more
efficient, we entered LinkedIn. We post our content in planned areas such as
leadership, customer and some our successful stories.

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81
Appendix 4: Content Analysis Code Lists

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!
82

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Asset Metadata

Creator Li, Mianmian (author)

Core Title A critical assessment of the uses and effectiveness of social media in investor communications

School Annenberg School for Communication

Degree Master of Arts

Degree Program Strategic Public Relations

Publication Date 04/24/2015

Defense Date 03/25/2015

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag investor communications,investor relations,OAI-PMH Harvest,social media

Format application/pdf (imt)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Swerling, Jerry (committee chair), Brabham, Daren C. (committee member), LeVeque, Matthew (committee member)

Creator Email mianmial@usc.edu,mmy0513@gmail.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c3-560129

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