Social Media as Firm's Network and Its Influence on the Corporate Performance

Social media or social network service has attracted a great amount of interest of applied studies, because we can see how people connect, behave, and interact each other through it even at a glance. Individual usage of social media can be viewed from corporate level in the market. This paper starts from such interest as well, trying to verify the applicability of social media in the corporate finance study. The basic question is whether social media interaction of the firm or firm's executive can affect the performance of the corresponding firm. In the study of economics and finance, firm level network has been studied in different contexts, mainly involved with economic benefit. However, the online network has not been enough studied regarding its effect on the corporate performance. In general, firm's decision making process has been regarded as exclusive and confidential, rather than publicly observable, which resulted in focusing more on the closed network in person or between related firms. But we observe that many top executives are already active or even stars on the social media. Therefore, we take a close look at this to determine if networking on social media is personal activity or corporate behavior. In other words, we are interested in whether the internet-based life style with social media can possibly influence on the corporate performance in the market or the firm-level decision making process. We investigate this question by using both social media and market data with firm information. First of all, we identify the determinants of social network behavior of the firms' executives. And next, we estimate the value of social media network on the corporate performance, calculating abnormal returns and analyzing its dynamics in the long term. Finally, we also verify the value of social media network in the context of executives' personal compensation. We expect that this research will provide a new insight about the social network on the corporate performance by adopting online social media as a network variable. It is also expected to broaden the applicability of the online network data to the academic questions in finance research.