This paper aims to study the following two questions. Do earnings announcements stimulate investors to participate in online discussions? Does online investment forum participation affect the market’s reaction to earnings news?
The authors collect all the online posts, which were related to the internet service companies and posted in a Chinese financial forum, guba.eastmoney.com (Guba), during the period between June 30, 2008 and December 31, 2015. Multiple linear regression analysis is used to test the questions.
The study finds that the earnings announcements induce online discussion. In addition, before the earnings announcement, online posting activity does not affect earnings response coefficient but can weaken the positive association between the magnitude of the upcoming earnings surprise and abnormal trading volume. In contrast, after the earnings announcement, online forum participation can facilitate the incorporation of earnings surprise into the price.
This study contributes to the literature studying the impact of social media on market reaction to earnings news by providing evidence that the price discovery process can be affected by the online investment forum. Several policy implications are also provided.
