Do Firms’ Social Media Fake News Clarifications Mitigate the PEAD Anomaly? Evidence from a Policy Experiment in China

ABSTRACT

Combating fake news about the stock market is a major issue in the social media era. We examine the impact of a firm’s social media fake news clarification on the PEAD using a 2010 Chinese policy experiment, which enabled firms to promptly respond to fake rumors on social media platforms. We find that a firm’s clarification of fake news on social media is negatively associated with PEAD, and its effect varies with certain dimensions of firm characteristics. Our evidence suggests that firms can play an active role in combating fake news on social media and in improving information efficiency in the stock market.

KEYWORDS:

• Social media
• fake news
• PEAD
• information efficiency
• China

JEL:

• G12
• G14
• G15

Acknowledgement

We gratefully acknowledge the financial support for this research obtained via the grant from the National Natural Science Foundation of China (NFSC Project Number: 71873032).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. In addition to caliper matching method, we also use nearest neighbor (NN) matching method to select control samples. The regression results are similar.

2. Following prior literature, we try alternative proxies of information asymmetry to split our sample, including (1) an indicator for firms operating in high-tech industries as defined by Loughran and Ritter (2004) and (2) the industry-quarter median of R&D intensity (i.e., R&D expenditures scaled by total assets) defined by Jung et al. (2022). We replicate the baseline regressions. The results are similar.

Additional information

Funding

The work was supported by the National Natural Science Foundation of China [71873032].