Financial Returns to Firms’ Communication Actions on Firm-Initiated Social Media: Evidence from Facebook Business Pages

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Published: 10Nov2020

Authors: S. Chung, Animesh Animesh, Kunsoo Han and Alain Pinsonneault

Publication: Information Systems Research, Volume 31, Issue 1, March 2020, Pages 258-285.

Abstract:

The primary goal of this study is to investigate the financial returns to firms’ communication actions on a firm-initiated social media platform by focusing on Facebook Business pages. To this end, we conceptualize and quantify two types of firms’ communication actions on social media: posts and responses to customer messages. Furthermore, we classify a firm’s responses to customer messages based on the valence of customer messages—positive versus negative—and examine the effects of volume as well as timeliness of the two types of a firm’s responses to customer messages on firm performance. Using a sample of 63 South Korean firms across industries over a three-year period (5,566 firm-week observations), we find that the volume and timeliness of a firm’s responses to negative customer messages, which are associated with an increase in customer satisfaction, have a significant positive impact on the firm’s market performance measured by abnormal returns and Tobin’s q. Interestingly, the results suggest that a firm’s posts and its responses to positive customer messages are not significantly associated with firm performance. Furthermore, we find that a firm’s posts and its responses to negative customer messages exhibit complementarities in contributing to firm performance. Our results are robust to various alternative specifications, econometric concerns, and Facebook’s policy changes, such as EdgeRank and Promoted Post. Our findings underscore the business value of firms’ actions on social media and provide unique and important implications for theory and practice regarding the appropriate ways to use social media for building and managing customer relationships.


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