Investigating Social Media Activity as a Firm’s Signaling Strategy Through an Initial Public Offering
Initial public offerings (IPOs) are a crucial step for entrepreneurial firms. Despite the growing popularity of social media among a variety of audiences including potential investors, limited studies have been conducted to investigate how firms can utilize social media to attract financial capitals during the IPO process. We attempt to shed light on this area through the signaling theoretical lens as well as the prior literature on electronic word of mouth (eWOM). Our study, based on Twitter and other data on 423 firms that went public in the US market from 2014 to 2015, provides significant 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 also found to be stronger for B2C firms.
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