The Impact of “Voting with Your Mouth” on Management Voluntary Disclosure
WANG Dan, SUN Kunpeng, GAO Hao
Business School, University of International Business and Economics; School of Public Finance and Taxation, Central University of Finance and Economics; Institute for Global Private Equity, Tsinghua University; PBC School of Finance, Tsinghua University
Summary:
China is promoting capital market reform to achieve its goal of “standardization, transparency, opening up, vitality and resilience.” Capital market reform entails improving listed companies' governance status and information disclosure quality. Minor shareholders are important participants in China's capital market, but they rarely play an impactful role in corporate governance. They cannot “vote with their hands” or form effective constraints on management and major shareholders through shareholder meetings. Furthermore, they cannot effectively threaten a company by “voting with their feet” because they have little influence on market price. The emergence of social media has decentralized the communication network and reduced the cost of communication for individuals. Stock forums are a social media platform that allows individuals to share their investment experiences and opinions on company operations. Stock forums have become an important platform for minor investors, enabling them to directly communicate with one another. This raises the question, does social media influence capital markets and improve corporate governance by allowing minor shareholders to comment on the actions of corporate managers？ Unlike traditional news media, stock forums are interactive multi-party platforms. They provide shareholders with direct access to a wide-ranging audience and act as timely, affordable, and accurate sources of information. Minor shareholders can directly express their opinions online, which are then read and spread by other minor shareholders of the respective company. Thus, the minor shareholder's voice is amplified, and the real-time mode of communication could cause public concern. Studies have found that stock forums can influence a firm's value and regulatory risk by triggering capital market feedback and regulatory attention. Considering that social media has empowered minor shareholders to impact corporate governance, the question this paper seeks to answer is whether corporate managers proactively respond to minor shareholders' online presence. In other words, does social media, such as stock forums, allow minor shareholders to express their opinions in ways that affect a company？ This paper collects data from stock forums on China's listed companies from 2012 to 2015 to test the governance effect of social media. The results show that a higher number of posts, readings, and comments on a stock forum positively affects the probability of management voluntary performance forecast, especially for the probability of disclosing bad news. Further, the research shows that “voting with your mouth,” or discussions on stock forums, could affect the stock price, attract regulatory attention, and influence media reports. This paper contributes to the literature in several ways. First, few studies have considered how the media, especially social media, impact management's disclosure behavior as an external governance mechanism. This paper studies whether social media affects management's disclosure behavior and supplements the literature on management voluntary disclosure. Secondly, studies have considered traditional media's external governance role; however, they have focused on social media's impact on capital markets as a mechanism for information dissemination. Few studies have focused on the corporate governance role of stock forums. This paper enriches the research on social media's external governance role while focusing on management disclosure. Third, minor shareholders have difficulty in protecting their interests, whether by “voting with their hands” or “voting with their feet”, because large shareholders have a greater stake in the company. This paper proposes that social media can provide minor shareholders with a new governance approach, “voting with their mouth.” This is a new approach for minor shareholders to participate in corporate governance. The Internet has greatly changed how information is disseminated in society. Researchers should examine how the change in dissemination affects the capital market's participants. This paper shows that stock forums provide minor investors with a platform to “vote with their mouth.” They allow minor investors to comment on and influence management's behavior, which helps protect their interests. This study has certain significance for better Internet regulation and capital market developments by demonstrating the comprehensive function of social media.
王丹, 孙鲲鹏, 高皓. 社交媒体上“用嘴投票”对管理层自愿性业绩预告的影响[J]. 金融研究, 2020, 485(11): 188-206.
WANG Dan, SUN Kunpeng, GAO Hao. The Impact of “Voting with Your Mouth” on Management Voluntary Disclosure. Journal of Financial Research, 2020, 485(11): 188-206.
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