Authors: S. Chung, Animesh Animesh, Kunsoo Han and Alain Pinsonneault
Publication: Information Systems Research, Volume 31, Issue 1, March 2020, Pages 258-285.
Abstract:
The primary goal of this study is to investigate the financial returns to firms鈥 communication actions on a firm-initiated social media platform by focusing on Facebook Business pages. To this end, we conceptualize and quantify two types of firms鈥 communication actions on social media: posts and responses to customer messages. Furthermore, we classify a firm鈥檚 responses to customer messages based on the valence of customer messages鈥攑ositive versus negative鈥攁nd examine the effects of volume as well as timeliness of the two types of a firm鈥檚 responses to customer messages on firm performance. Using a sample of 63 South Korean firms across industries over a three-year period (5,566 firm-week observations), we find that the volume and timeliness of a firm鈥檚 responses to negative customer messages, which are associated with an increase in customer satisfaction, have a significant positive impact on the firm鈥檚 market performance measured by abnormal returns and Tobin鈥檚 q. Interestingly, the results suggest that a firm鈥檚 posts and its responses to positive customer messages are not significantly associated with firm performance. Furthermore, we find that a firm鈥檚 posts and its responses to negative customer messages exhibit complementarities in contributing to firm performance. Our results are robust to various alternative specifications, econometric concerns, and Facebook鈥檚 policy changes, such as EdgeRank and Promoted Post. Our findings underscore the business value of firms鈥 actions on social media and provide unique and important implications for theory and practice regarding the appropriate ways to use social media for building and managing customer relationships.