How do social media shape the information environment in the financial market?

Internet users create social media that enable information to be transferred more efficiently. In this work we focus on a typical social media platform Wikipedia and examine how management's voluntary disclosure reacts to information arrivals on Wikipedia. In doing so, we seek to answer the question of whether social media indeed improve the information environment for investors in the financial market. Our analysis is based on a unique dataset collected from the modification history of firm entries on Wikipedia, and thus we are able to identify information arrivals on Wikipedia. We find that information arrivals on Wikipedia affect the timing of management disclosure of bad news, and the effect is in sharp contrast to the way in which traditional media affect management disclosure. Further, we find consistent evidence that information arrivals on Wikipedia preempt the negative reaction of the market to bad news. In contrast, more news coverage in traditional media exacerbates the problem of optimistic analyst forecasts. Together these findings emphasize that social media have an identifiable effect on both the management side and the investor side in the financial market.