Advertisement

Small Business Economics

, Volume 53, Issue 3, pp 631–645 | Cite as

Investigating social media as a firm’s signaling strategy through an IPO

  • Atthaphon Mumi
  • Michael Obal
  • Yi YangEmail author
Article
  • 473 Downloads

Abstract

Initial public offerings (IPOs) are a crucial step for entrepreneurial firms. Despite the growing popularity of social media among various audiences, including potential investors, limited studies have investigated how firms can utilize social media to attract financial capital during the IPO process. We utilize the signaling theory and the electronic word of mouth (eWOM) literature to shed light on this issue. Our study, based on Twitter and SDC data of 367 firms that went public in the USA from 2014 to 2015, provides evidence in support of a positive relationship between social media use by a firm and its IPO value. Furthermore, the effectiveness of a firm’s tweets is mediated by public responses to its tweets, and such effectiveness is found to be stronger for B2C firms and firms with more traditional media coverage.

Keywords

Social media Initial public offering Signaling theory Word of mouth Twitter B2C 

JEL classifications

G14 L26 M13 M30 

Supplementary material

11187_2018_66_MOESM1_ESM.docx (22 kb)
ESM 1 (DOCX 21.8 kb)
11187_2018_66_MOESM2_ESM.docx (17 kb)
ESM 2 (DOCX 20 kb)

References

  1. Aula, P. (2010). Social media, reputation risk and ambient publicity management. Strategy & Leadership, 38(6), 43–49.  https://doi.org/10.1108/10878571011088069.Google Scholar
  2. Barnes, N., Lescault, A., & Andonian, J. 2012. Social media surge by the 2012 fortune 500: Increase use of blogs, Facebook, Twitter and more. Charlton College of Business Center for Marketing Research.Google Scholar
  3. Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173.  https://doi.org/10.1037/0022-3514.51.6.1173.Google Scholar
  4. Borah, A., Park, U. D., & Pahnke, E. C. (2015). Why silence is golden? Firm participation in social media in an IPO context. Academy of Management Proceedings, 2015(1), 18812.  https://doi.org/10.5465/AMBPP.2015.294.Google Scholar
  5. Breusch, T. S., & Pagan, A. R. (1979). A simple test for heteroscedasticity and random coefficient variation. Econometrica: Journal of the Econometric Society, 1287–1294.  https://doi.org/10.2307/1911963.
  6. Certo, S. T. (2003). Influencing initial public offering investors with prestige: signaling with board structures. Academy of Management Review, 28(3), 432–446.  https://doi.org/10.5465/AMR.2003.10196754.Google Scholar
  7. Chou, T.-K., Cheng, J.-C., & Chien, C.-C. (2013). How useful is venture capital prestige? Evidence from IPO survivability. Small Business Economics, 40(4), 843–863.  https://doi.org/10.1007/s11187-011-9389-5.Google Scholar
  8. Chung, W., & Kalnins, A. (2001). Agglomeration effects and performance: a test of the Texas lodging industry. Strategic Management Journal, 22(10), 969–988.  https://doi.org/10.1002/smj.178.Google Scholar
  9. Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: a review and assessment. Journal of Management, 37(1), 39–67.  https://doi.org/10.1177/0149206310388419.Google Scholar
  10. Costa, B. A., Crawford, A., & Jakob, K. (2013). Does culture influence IPO underpricing? Journal of Multinational Financial Management, 23(1), 113–123.  https://doi.org/10.1016/j.mulfin.2012.12.001.Google Scholar
  11. Coulter, K. S., Bruhn, M., Schoenmueller, V., & Schäfer, D. B. (2012). Are social media replacing traditional media in terms of brand equity creation? Management Research Review, 35(9), 770–790.  https://doi.org/10.1108/01409171211255948.Google Scholar
  12. Day, G. S. (1971). Attitude change, media and word of mouth. Journal of Advertising Research.Google Scholar
  13. Dichter, E. (1966). How word-of-mouth advertising works. Harvard Business Review, 44(6), 147–160.Google Scholar
  14. Fischer, E., & Reuber, A. R. (2011). Social interaction via new social media: (how) can interactions on Twitter affect effectual thinking and behavior? Journal of Business Venturing, 26(1), 1–18.  https://doi.org/10.1016/j.jbusvent.2010.09.002.Google Scholar
  15. Fischer, E., & Reuber, A. R. (2014). Online entrepreneurial communication: mitigating uncertainty and increasing differentiation via Twitter. Journal of Business Venturing., 29, 565–583.  https://doi.org/10.1016/j.jbusvent.2014.02.004.Google Scholar
  16. Goh, K., Heng, C., & Lin, Z. (2013). Social media brand community and consumer behavior: quantifying the relative impact of user-and marketer-generated content. Information Systems Research, 24(1), 88–107  https://doi.org/10.1287/isre.1120.0469.Google Scholar
  17. Gopinath, S., Chintagunta, P. K., & Venkataraman, S. (2013). Blogs, advertising, and local-market movie box office performance. Management Science, 59(12), 2635–2654  https://doi.org/10.1287/mnsc.2013.1732.Google Scholar
  18. Gotsi, M., & Wilson, A. (2001). Corporate reputation management: “living the brand”. Management Decision, 39(2), 99–104  https://doi.org/10.1108/EUM0000000005415.Google Scholar
  19. Gulati, R., & Higgins, M. C. (2003). Which ties matter when? The contingent effects of interorganizational partnerships on IPO success. Strategic Management Journal, 24(2), 127–144.  https://doi.org/10.1002/smj.287.Google Scholar
  20. Hayes, A. F. (2013). Introduction to mediation, moderation, and conditional process analysis: a regression-based approach. Guilford Press.Google Scholar
  21. Hennig-Thurau, T., Gwinner, K. P., Walsh, G., & Gremler, D. D. (2004). Electronic word-of-mouth via consumer-opinion platforms: what motivates consumers to articulate themselves on the internet? Journal of Interactive Marketing, 18(1), 38–52  https://doi.org/10.1002/dir.10073.Google Scholar
  22. Homburg, C., & Fürst, A. (2005). How organizational complaint handling drives customer loyalty: an analysis of the mechanistic and the organic approach. Journal of Marketing, 69(3), 95–114  https://doi.org/10.1509/jmkg.69.3.95.66367.Google Scholar
  23. Jain, B. A., Jayaraman, N., & Kini, O. (2008). The path-to-profitability of Internet IPO firms. Journal of Business Venturing, 23(2), 165–194  https://doi.org/10.1016/j.jbusvent.2007.02.004.Google Scholar
  24. Kaplan, A. M., & Haenlein, M. (2010). Users of the world, unite! The challenges and opportunities of social media. Business Horizons, 53(1), 59–68  https://doi.org/10.1016/j.bushor.2009.09.003.Google Scholar
  25. Kietzmann, J. H., Hermkens, K., McCarthy, I. P., & Silvestre, B. S. (2011). Social media? Get serious! Understanding the functional building blocks of social media. Business Horizons, 54(3), 241–251  https://doi.org/10.1016/j.bushor.2011.01.005.Google Scholar
  26. Kozinets, R., Wojnicki, A. C., Wilner, S. J., & De Valck, K. 2010. Networked narratives: understanding word-of-mouth marketing in online communities. Journal of Marketing, March.  https://doi.org/10.1509/jmkg.74.2.71.
  27. Kumar, V., Bhaskaran, V., Mirchandani, R., & Shah, M. (2013). Practice prize winner-creating a measurable social media marketing strategy: increasing the value and ROI of intangibles and tangibles for hokey pokey. Marketing Science, 32(2), 194–212  https://doi.org/10.1287/mksc.1120.0768.Google Scholar
  28. Kutner, M. H., Nachtsheim, C., & Neter, J. (2004). Applied linear regression models . McGraw-hill. Irwin.Google Scholar
  29. Laroche, M., Habibi, M. R., & Richard, M. O. (2013). To be or not to be in social media: how brand loyalty is affected by social media? International Journal of Information Management, 33(1), 76–82  https://doi.org/10.1016/j.ijinfomgt.2012.07.003.Google Scholar
  30. Lee, J., & Habte-Giorgis, B. (2004). Empirical approach to the sequential relationships between firm strategy, export activity, and performance in US manufacturing firms. International Business Review, 13(1), 101–129  https://doi.org/10.1016/j.ibusrev.2003.05.003.Google Scholar
  31. Lester, R. H., Certo, S. T., Dalton, C. M., Dalton, D. R., & Cannella, A. A. (2006). Initial public offering investor valuations: an examination of top management team prestige and environmental uncertainty. Journal of Small Business Management, 44(1), 1–26.  https://doi.org/10.1111/j.1540-627X.2006.00151.x.Google Scholar
  32. Loughran, T., Ritter, J. R., & Rydqvist, K. (1994). Initial public offerings: international insights. Pacific-Basin Finance Journal, 2(2), 165–199.  https://doi.org/10.1016/0927-538X(94)90016-7.Google Scholar
  33. Luo, X. (2008). When marketing strategy first meets Wall Street: marketing spendings and firms’ initial public offerings. Journal of Marketing, 72(5), 98–109.  https://doi.org/10.1509/jmkg.72.5.98.Google Scholar
  34. Luo, X., & Zhang, J. (2013). How do consumer buzz and traffic in social media marketing predict the value of the firm? Journal of Management Information Systems, 30(2), 213–238.Google Scholar
  35. Luo, X., Zhang, J., & Duan, W. (2013). Social media and firm equity value. Information Systems Research, 24(1), 146–163.  https://doi.org/10.1287/isre.1120.0462.Google Scholar
  36. Malhotra, A., Malhotra, C. K., & See, A. (2012). How to get your messages retweeted. Sloan Management Review, 53(2), 61–66.Google Scholar
  37. Michaelidou, N., Siamagka, N. T., & Christodoulides, G. (2011). Usage, barriers and measurement of social media marketing: an exploratory investigation of small and medium B2B brands. Industrial Marketing Management, 40(7), 1153–1159.  https://doi.org/10.1016/j.indmarman.2011.09.009.Google Scholar
  38. Miller, T., & del Carmen Triana, M. (2009). Demographic diversity in the boardroom: mediators of the board diversity–firm performance relationship. Journal of Management Studies, 46(5), 755–786.  https://doi.org/10.1111/j.1467-6486.2009.00839.x.Google Scholar
  39. Miller, A. R., & Tucker, C. (2013). Active social media management: the case of health care. Information Systems Research, 24(1), 52–70.  https://doi.org/10.1287/isre.1120.0466.Google Scholar
  40. Mousa, F., Wales, W. J., & Harper, S. R. (2015). When less is more: EO’s influence upon funds raised by young technology firms at IPO. Journal of Business Research, 68(2), 306–313.  https://doi.org/10.1016/j.jbusres.2014.07.003.Google Scholar
  41. Nambisan, S. 2016. Digital entrepreneurship: toward a digital technology perspective of entrepreneurship. s, doi: https://doi.org/10.1111/etap.12254.
  42. Navis, C., & Glynn, M. A. (2010). How new market categories emerge: temporal dynamics of legitimacy, identity, and entrepreneurship in satellite radio, 1990-2005. Administrative Science Quarterly, 55(3), 439–471.  https://doi.org/10.2189/asqu.2010.55.3.439.Google Scholar
  43. Nelson, T. (2003). The persistence of founder influence: management, ownership, and performance effects at initial public offering. Strategic Management Journal, 24(8), 707–724.  https://doi.org/10.1002/smj.328.Google Scholar
  44. Obschonka, M., & Fisch, C. (2017). Entrepreneurial personalities in political leadership. Small Business Economics, 25, 1–19.  https://doi.org/10.1007/s11187-017-9901-7.Google Scholar
  45. Obschonka, M., Fisch, C., & Boyd, R. (2017). Using digital footprints in entrepreneurship research: a Twitter-based personality analysis of superstar entrepreneurs and managers. Journal of Business Venturing Insights, 8, 13–23.  https://doi.org/10.1016/j.jbvi.2017.05.005.Google Scholar
  46. Pollock, T. G., & Rindova, V. P. (2003). Media legitimation effects in the market for initial public offerings. Academy of Management Journal, 46(5), 631–642.  https://doi.org/10.2307/30040654.Google Scholar
  47. Preacher, K. J., & Hayes, A. F. (2004). SPSS and SAS procedures for estimating indirect effects in simple mediation models. Behavior Research Methods, 36(4), 717–731.  https://doi.org/10.3758/BF03206553.Google Scholar
  48. Qiu, L., Pang, J., & Lim, K. H. (2012). Effects of conflicting aggregated rating on eWOM review credibility and diagnosticity: the moderating role of review valence. Decision Support Systems, 54(1), 631–643.  https://doi.org/10.1016/j.dss.2012.08.020.Google Scholar
  49. Ragozzino, R., & Reuer, J. J. (2011). Geographic distance and corporate acquisitions: signals from IPO firms. Strategic Management Journal, 32(8), 876–894.  https://doi.org/10.1002/smj.914.Google Scholar
  50. Ravasi, D., & Marchisio, G. (2003). Going public and the enrichment of a supportive network. Small Business Economics, 21(4), 381–395.  https://doi.org/10.1023/A:1026119221991.Google Scholar
  51. Reuter, J. (2006). Are IPO allocations for sale? Evidence from mutual funds. The Journal of Finance, 61(5), 2289–2324.  https://doi.org/10.1111/j.1540-6261.2006.01058.x.Google Scholar
  52. Rokka, J., Karlsson, K., & Tienari, J. (2014). Balancing acts: managing employees and reputation in social media. Journal of Marketing Management, 30(7–8), 802–827.  https://doi.org/10.1080/0267257X.2013.813577.Google Scholar
  53. Sanders, W. G., & Boivie, S. (2004). Sorting things out: valuation of new firms in uncertainty markets. Strategic Management Journal, 25(2), 167–186.  https://doi.org/10.1002/smj.370.Google Scholar
  54. Sapienza, H. J., Parhankangas, A., & Autio, E. (2004). Knowledge relatedness and post-spin-off growth. Journal of Business Venturing, 19(6), 809–829.  https://doi.org/10.1016/j.jbusvent.2003.06.002.Google Scholar
  55. Sen, S., & Lerman, D. (2007). Why are you telling me this? An examination into negative consumer reviews on the web. Journal of Interactive Marketing, 21(4), 76–94.  https://doi.org/10.1002/dir.20090.Google Scholar
  56. Smith, A. N., Fischer, E., & Yongjian, C. (2012). How does brand-related user-generated content differ across YouTube, Facebook, and Twitter? Journal of Interactive Marketing, 26(2), 102–113.  https://doi.org/10.1016/j.intmar.2012.01.002.Google Scholar
  57. Sobel, M. E. (1982). Asymptotic confidence intervals for indirect effects in structural equation models. Sociological Methodology, 13, 290–312.  https://doi.org/10.2307/270723.Google Scholar
  58. Spence, M. (2002). Signaling in retrospect and the informational structure of markets. American Economic Review, 434–459 http://www.jstor.org/stable/3083350.
  59. Stephen, A. T., & Galak, J. (2012). The effects of traditional and social earned media on sales: A study of a microlending marketplace. Journal of Marketing Research, 49(5), 624-639.  https://doi.org/10.1509/jmr.09.0401.
  60. Stiglitz, J. E. (2002). Information and the change in the paradigm in economics. American Economic Review, 460–501 http://www.jstor.org/stable/3083351.
  61. St-Pierre, G. (2000). Can the stock market success of Montreal’s IPOs be predicted by the prospectus’ content? Small Business Economics, 15(1), 13–26.  https://doi.org/10.1023/A:1026507813481.Google Scholar
  62. Swani, K., Brown, B. P., & Milne, G. R. (2014). Should tweets differ for B2B and B2C? An analysis of fortune 500 companies’ Twitter communications. Industrial Marketing Management, 43(5), 873–881.  https://doi.org/10.1016/j.indmarman.2014.04.012.Google Scholar
  63. Twitter.com. Learn twitter. https://business.twitter.com/basics/learn-twitter 12/05/2015.
  64. Vismara, S. (2016). Equity retention and social network theory in equity crowdfunding. Small Business Economics, 46(4), 579–590.  https://doi.org/10.1007/s11187-016-9710-4.Google Scholar
  65. de Vries, L., Gensler, S., & Leeflang, P. S. H. (2012). Popularity of brand posts on brand fan pages: an investigation of the effects of social media marketing. Journal of Interactive Marking, 26(2), 83–91.  https://doi.org/10.1016/j.intmar.2012.01.003.Google Scholar
  66. Wang, X., Yu, C., & Wei, Y. (2012). Social media peer communication and impacts on purchase intentions: a consumer socialization framework. Journal of Interactive Marketing, 26(4), 198–208.  https://doi.org/10.1016/j.intmar.2011.11.004.Google Scholar
  67. White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48, 817–830.  https://doi.org/10.2307/1912934.Google Scholar
  68. Williams, D. R., Duncan, W. J., & Ginter, P. M. (2010). Testing a model of signals in the IPO offer process. Small Business Economics, 34(4), 445–463.  https://doi.org/10.1007/s11187-008-9130-1.Google Scholar
  69. Wyld, D. C. (2008). Management 2.0: a primer on blogging for executives. Management Research News, 31(6), 448–483.  https://doi.org/10.1108/01409170810876044.Google Scholar
  70. Zhang, Y., & Wiersema, M. F. (2009). Stock market reaction to CEO certification: the signaling role of CEO background. Strategic Management Journal, 30(7), 693–710.  https://doi.org/10.1002/smj.772.Google Scholar
  71. Zhang, M., Jansen, B. J., & Chowdhury, A. (2011). Business engagement on Twitter: a path analysis. Electronic Markets, 21(3), 161–175.  https://doi.org/10.1007/s12525-011-0065-z.Google Scholar
  72. Zimmerman, M. A. (2008). The influence of top management team heterogeneity on the capital raised through an initial public offering. Entrepreneurship Theory and Practice, 32(3), 391–414.  https://doi.org/10.1111/j.1540-6520.2008.00233.x.Google Scholar
  73. Zimmerman, M. A., & Zeitz, G. J. (2002). Beyond survival: achieving new venture growth by building legitimacy. Academy of Management Review, 27(3), 414–431.  https://doi.org/10.5465/AMR.2002.7389921.Google Scholar
  74. Zuckerman, E. W. (1999). The categorical imperative: securities analysts and the illegitimacy discount. American Journal of Sociology, 104(5), 1398–1438.  https://doi.org/10.1086/210178.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Mahasarakham Business SchoolMahasarakham UniversityMaha SarakhamThailand
  2. 2.Department of Marketing Entrepreneurship & InnovationUniversity of Massachusetts LowellLowellUSA

Personalised recommendations