More than half of us get news from social media, clicking on the articles in our feed that pique our interest. It is only natural, then, that companies would also use this type of communication to connect with various stakeholders. And indeed, about a decade ago, many companies started using Facebook and Twitter to get financial news to investors.

But what kind of news? Did these early adopter companies tweet out only good financial news and bypass, say, an underwhelming earnings report? Or did they also use social media to disseminate bad news? Then they could at least offer context for why the picture was not so rosy, as opposed to relying solely on mandated quarterly reports, or coverage from the business press, and thus losing control of the narrative.

No one had previously analyzed this question, as well as its natural follow-up: How did the public respond to the information that was shared?

So the Kellogg School’s James Naughton and Clare Wang decided to investigate.

“For us, social media was a setting we used to get at the bigger research question of whether companies strategically disseminate information to manage public perception,” says Naughton.

Strategic Corporate Tweets

The researchers, who are both assistant professors of accounting information and management, teamed up with Michael Jung from New York University and Ahmed Tahoun from London Business School. The team looked at companies listed on the S&P 1500 index to see whether they had accounts on Facebook, Twitter, LinkedIn, Pinterest, YouTube, or Google+

As they combed through their data, the researchers discovered that Twitter was the most widely adopted social media site for corporations. They also learned that businesses that tweet could be broadly categorized into two types: those that tweet to market their products to consumers and those that tweet to create a dialogue with investors.

From there, the team narrowed down its focus to those companies that used Twitter to communicate with investors between the first quarter of 2010 and the first quarter of 2013. How and what firms tweeted varied drastically. Some companies provided a huge amount of context on Twitter, Naughton says, explaining why earnings were high or low, or what aspect of the quarterly performance was especially good or bad. Others? They “would provide a single tweet and then they were done,” he says.

The team also learned that businesses tweeted good earnings information more often than bad, meaning they were strategically promoting positive news to the public.

“For us, the most significant thing is we were able to document strategic dissemination. That’s something in our field that hasn’t been done, because there are few settings where a researcher can disentangle information from dissemination,” Naughton says.

Corporate Social Media and Investor Perception

So how did the public respond to this strategic dissemination?

Interestingly, despite the preference by the companies to focus on the positive, their followers preferred to zero in on the negative. Journalists were more likely to pick up negative stories than positive ones, particularly when the bad news was re-tweeted by followers of the company’s Twitter account.

And how did all this tweeting and retweeting impact investors’ perception of the company? The researchers measured this by looking at trading volumes and bid–ask spreads, which are the difference between the price a buyer will pay for an asset like a stock or security and the price a seller will accept.

When tweets contained good news, trading volume was lower, as was the bid–ask spread. This shows that the asking price was in line with what buyers were willing to pay, which generally means that investors are comfortable with the stock price. The opposite was true when bad news was tweeted out. And, as that bad news was retweeted again and again, the bid–ask discrepancy got bigger and trading volume increased, showing unease among investors.

There is a lesson here for corporate social media managers, Naughton says. “It turns out that it is okay to go overboard on the good news and be a little bit more reluctant on the bad news.”

People have limited attention spans and don’t always peruse company-mandated disclosures, the researchers say, so a business can craft how investors see the firm by only posting positive information to social media.

Tweet with Caution

The social media landscape is a bit different now than it was during the period covered in Naughton and Wang’s data. In 2013, the SEC officially gave its stamp of approval to the dissemination of earnings information on social media as long as investors were alerted. The effects of this SEC approval on corporate social media activities are currently being studied.

These companies that joined social media more recently can learn from the experiences of the early adopters: social media posts may well affect how others, including investors, perceive them.

It is premature, Naughton says, to offer an explicit list of best practices to company executives and social media teams looking for the best way to disseminate information.

Until then, Naughton’s advice is simply, “Just to be careful.