Do internet stock message boards influence firm value? evidence from China

ABSTRACT

This study examines whether Internet stock message boards influence firm value in China. By analyzing data on online posts manually collected from a Chinese stock message board over the period from 2007 to 2018, we find that more online posts lead to greater firm value. Besides, the impact of stock message boards on firm value is more pronounced for firms with higher idiosyncratic risk. We further examine the mechanisms underlying the positive association between online posts and firm value. We find that more online posts contribute to a larger shareholder base and more retail investors’ trading, which potentially increases the degree of investor recognition and therefore enhances firm value. The results are robust to instrumental variable approaches and alternative model specifications. Overall, this study provides a new understanding of the effect of social media on financial market.

KEYWORDS:

• Stock message boards
• firm value
• investor recognition hypothesis
• social media

Disclosure statement

No potential conflict of interest was reported by the authors.

Table A2: Test for validity of instrumental variable

This table reports the descriptive statistics of coefficients of first-stage estimation of 2SLS regression which regresses online posts measures on the ratio of registered users for each sub-forum of sample stocks. The dependent variables are the number of posts (Posts_t+1), the number of clicks (Clicks_t+1), and the number of replies (Repliess_t+1), manually collected from Eastmoney (http://guba.eastmoney.com). The independent variable is the ratio of registered users measured as the number of posts generated by registered users divided by the total number of posts for stock i at quarter t. The sample is 290 stocks of CSI 300 Index constituents utilized in this paper. The mean and standard deviation of coefficient on the ratio of registered users, adjusted R-square, F statistic, Kleibergen-Paap rk LM statistic, and Kleibergen-Paap rk Wald F statistic are reported respectively. % of Significance indicates the percentage of the sample firms, of which the coefficient and corresponding test statistics are significant at 5% significance level.

Table

Table A3: Hansen’s J-test for endogeneity of instrumental variable

This table reports the summary statistics of Hansen’s J-statistics for the test of endogeneity of the instrumental variable. The dependent variables are the log transformation of Tobin’s Q (log(Q_t+1)), log transformation of B/M ratio (log(BM_t+1)), and log transformation of adjusted Tobin’s Q (log(AdjQ_t+1)). FitPosts, FitClicks and FitReplies are the fitted value of number of posts, number of clicks, and number of replies calculated from the first-stage estimation of 2SLS regression as shown in Table A2 of Appendix. Mean suggests the mean value of Hansen’s J-stat for 290 sample stocks of CSI 300 Index constituents utilized in our paper. % of Significance indicates the percentage of the sample firms, of which the Hanen’s J-stat are significant at 5% significance level.

Table

Notes

1. Mass media, or as some refer to as traditional media, encompasses television, radio, print such as newspapers and magazines, mail, and outdoor messages.

2. The model of Merton (1987) implicates that the relationship between investor recognition and firm value is stronger for stocks with greater arbitrage costs.

3. The CSI 300 Index is a major capitalization-weighted stock market index designed to replicate the performance of top 300 companies listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange in China. The index is compiled by the China Securities Index Company Ltd. and has been launched since 8 April 2005.

4. From 22 April 1998, under the regulation of Shanghai Stock Exchange and Shenzhen Stock Exchange, in the event of financial issues or other abnormal conditions of listed companies that make investors unable to judge the future of the companies and may endanger the interests of investors, the Stock Exchanges shall take special treatment on these stocks. Therefore, we exclude all the ST and *ST stocks following the previous literature.

5. According to the Guidelines on Industry Classification of Listed Companies in China, all companies listed on the stock exchange of China can fall into thirteen general categories (China Securities Regulatory Commission, 2007). Please refer to http://www.csrc.gov.cn/pub/csrc_en/newsfacts/release/200708/t20070816_69104.html.

6. The large trading volume by retail investors seems unsurprising duo to high turnover rate by retail investors. For example, the ratio of hold value by retail investors is around 21.17%, while the ratio of turnover by retail investor is as high as 82.01% in 2017 according to Shanghai Stock Exchange Statistics Annual (2018) (Shanghai Stock Exchange 2018).

7. Our sample is hand-collected from Eastmoney.com, which is one of the most popular and influential stock message boards for equities investment in China. As a dominant player, Eastmoney reaches a 68.1% market share of China’s online financial forums and receives around 4 million pageviews per day. However, there are other stock message boards, such as Xueqiu.com, Taoguba.com and Jisulu.cn, which are also widely used among Chinese investors. Therefore, our estimates of the impact of stock message boards on firm value could be underreported because we do not take into account the possible impact of other stock message boards.

8. For example, the forum would intentionally adopt accumulated points system and exclusively deliver important news and special reports on stocks to registered users.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71901087, 72001157].