Negative peer disclosures, crash risk, and strategic change

Scott Below, Oneil Harris, Charmaine Linton and Thanh Ngo

Journal of Behavioral and Experimental Finance, 2025, vol. 46, issue C

Abstract: By analyzing negative peer disclosures (NPDs) on Twitter, we provide evidence that crash risk decreases after tweeted firms are the subject of adverse peer tweets. NPDs also act as catalysts for companies to implement strategic changes, suggesting that managers are motivated to turn things around in response to negative tweets from their peers. Managers also take less risk and reduce financial statement opaqueness as a result. In scale and importance, the strategic change channel appears to be the main mechanism by which NPDs reduce stock price crashes. Moreover, in response to strategic shifts, auditors increase audit fees and analysts issue less optimistic earnings forecasts when they cover tweeted firms. Overall, our study illustrates the transformative effects of social media on product rivalry and market outcomes, and highlights NPDs as powerful tools for firm competition that hold managers accountable.

Keywords: Negative peer disclosures; crash risk; strategic change (search for similar items in EconPapers)
JEL-codes: G14 G30 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:46:y:2025:i:c:s2214635025000449

DOI: 10.1016/j.jbef.2025.101063

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