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Journal of Accounting and Economics, 70(1), 101334 (2020) One of the fundamental questions in financial economics is how information affects the capital market. Social media, with user-generated content, speed and wide reach, has the potential to facilitate the aggregation of information and help stock price formation (crowd wisdom effect). It also provides fertile ground for disinformation to spread and hinder price discovery (rumor mill effect). The authors of this paper investigate whether social media can play a negative information role by hindering price discovery in the presence of highly speculative rumors with a focus on merger rumors. They examine Twitter activity and price evolution around merger rumors, using a sample of 304 rumors about mergers and acquisitions that appeared in the media from 2009 to 2014. The investigation finds evidence of the rumor mill effect in the presence of highly speculative rumors. Specifically, user Twitter activity around merger rumors distorts, rather than facilitates, price discovery. |
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Weishi Jia, Cleveland State University |
When the authors specifically focus on the price evolution around unrealized merger rumors, they find similar price distortions driven by tweet volume, as evidenced by immediate overreaction and prolonged price discovery. The price distortion associated with tweet volume persists weeks after a rumor and reverses only after eight weeks.
In addition, this research finds that author influence, investor base, and rumor specificity affect the relationship between social media and price discovery. It studies whether tweets posted by users with higher social media influence generate greater stock market impact, whether the investor base of a rumored target plays a role in the market reaction, and whether the effect of rumors that appear more specific is more obvious. The results show that price distortion is more pronounced for rumors tweeted by Twitter users with greater social influence, for target firms with low institutional ownership, and for rumors that supply more details.
This study sheds light on the downside of social media as an information channel by examining whether social media activity impedes price discovery in the face of potentially false rumors. The results suggest that social media can be a rumor mill that hinders the market's price discovery of potentially false information.
The evidence that social media is a double-edged sword (spreading crowd wisdom and being a rumor mill) should be of interest to academics, practitioners, and regulators. In an age when false information can dominate the headlines and people are increasingly turning to social media as an information channel, this paper also contributes to the broader debate regarding the roles and responsibilities of media and social media outlets.
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Operations Research, forthcoming Customer reward programs are widely used as a means to foster customer loyalty, increase acquisition and retention, and boost long-term profitability. Although these programs are becoming more complex, most of them have one thing in common - consumers purchasing and accumulating a specified number of points (redemption threshold), often within a given time period (expiration term) can redeem the points for rewards. Together these requirements are referred to as “redemption hurdles” in this paper. The authors study the role of redemption hurdles in shaping consumer behavior and reward program profitability with a focus on the popular "Buy X, Get One Free" (BXGO) programs, which set a redemption threshold (X), and possibly an expiration term for the reward (free products/services). In their modeling framework, forward-looking consumers repeatedly interact with the seller (a monopolistic firm offering a nondurable product) over a long time horizon, and strategically make purchase and redemption decisions. |
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Yan Liu, The Hong Kong Polytechnic University |
This research makes substantial contribution to the literature. It builds a novel consumer model based on consumer purchase and redemption behavior. It demonstrates that redemption hurdles give rise to interesting dynamics in consumers' purchase and redemption decisions over time, and that a reward program can be profit-enhancing even for a single consumer type. It also shows the underlying mechanisms through which redemption hurdles can increase a firm's profitability.
This study has important findings. First, a consumer's purchase probability increase as her reward point inventory approaches the redemption threshold. These patterns are consistent with the "point pressure" phenomenon documented in the empirical literature. To the best of the authors’ knowledge, they are the first to analytically show why and how point pressure arises due to redemption hurdles. Second, a redemption threshold alone cannot improve the firm's profit, unless it is coupled with a finite expiration term, or a positive transaction utility that consumers may derive from reward redemption. The authors examine how a firm can leverage redemption thresholds and/or expiration terms to strike a balance between customer acquisition and retention, and eventually increase firm profitability.
These results of this study have clear and rich managerial implications for effectively designing reward programs. First, it is important for rewards to be relevant and valuable for consumers, and reward programs with low transaction utility should set a finite expiration term in order to be profitable. Second, every firm should try to facilitate consumers' reward redemption and boost their transaction utility, for instance, by converting punch cards to digital ones. Finally, the optimal design of redemption hurdles requires a careful analysis and a balance between the redemption threshold, expiration term, and price.
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Contemporary Accounting Research, forthcoming Understanding the association between quasi-indexer ownership and insider trading is important given the externalities that insider trading can impose on shareholders, the importance of quasi-indexers in the capital markets, and their mixed monitoring incentives. The prior literature has produced a mixed set of results regarding this association. These results are difficult to interpret because the association between them is likely endogenous and prior studies have not employed effective identification strategies to address this issue. In this study, the authors examine the effects of quasi-indexer institutional ownership on insider trading using the plausibly exogenous discontinuity in quasi-indexer ownership around the Russell 1000/2000 index cutoff. Using both regression discontinuity and instrumental variable research designs, they find higher quasi-indexer ownership leads to less insider trading (both buys and sells) and less profitable sell trades. The effects for sells are concentrated among insider trades that, ex ante, are more likely to be based on private information. Their evidence on the profitability of buys is mixed. In addition, they find firms with higher quasi-indexer ownership are more likely to have and/or more strictly enforce blackout policies. Overall, the results suggest that quasi-indexers can reduce the agency costs associated with insider trading through their direct and indirect monitoring activities. |
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Stephen A. Hillegeist, Arizona State University Liwei Weng, The Hong Kong Polytechnic University |
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Management Science, forthcoming The authors study the impacts of social interactions on competing firms’ quality differentiation, pricing decisions, and profit performance. Two forms of social interactions are identified and analyzed: (1) market-expansion effect (MEE) - the total market expands as a result of both firms’ sales - and (2) value-enhancement effect (VEE) - a consumer gains additional utility of purchasing from one firm based on this firm’s previous and/or current sales volume. The authors consider a two-stage duopoly competition framework, in which both firms select quality levels in the first stage simultaneously and engage in a two-period price competition in the second stage. In the main model, they assume that each firm sets a single price and commits to it across two selling periods. They find that both forms of social interactions tend to lower prices and intensify price competition for given quality levels. However, MEE weakens the product-quality differentiation and is benign to both high-quality and low-quality firms. It also benefits consumers and improves social welfare. By contrast, VEE enlarges the quality differentiation and only benefits high-quality firms, but is particularly malignant to low-quality firms. It further reduces the consumers’ monetary surplus. Such impact is consistent, regardless of whether the VEE interactions involve previous or current consumers. The authors further discuss several model extensions, including dynamic pricing, combined social effects, and various cost structures, and verify that the aforementioned impacts of MEE and VEE are qualitatively robust to those extensions. Their results provide important managerial insights for firms in competitive markets and suggest that they need to not only be aware of the consumers’ social interactions, but also, more importantly, distinguish the predominant form of the interactions so as to apply proper marketing strategies. |
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Xin Geng, University of Miami Xiaomeng Guo, The Hong Kong Polytechnic University Guang Xiao, The Hong Kong Polytechnic University |
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Journal of Applied Psychology, 106(2), 250-267 (2021) Drawing upon social comparison theory, the authors developed and tested a model to examine potential negative coworker reactions toward proactive employees. They theorized that a focal employee’s proactive personality is positively related with his or her high relative standing in the group, which in turn exposes him or her to being the target of coworker envy. This may then reduce the focal employee’s received help from coworkers and give rise to coworker undermining. The authors further reasoned that employee prosocial motivation moderates the serial mediated relationships. Their hypotheses were generally supported in 3 field studies involving a total of 1,069 employees from 223 groups. Proactive personality was negatively and indirectly related to received help from coworkers, via relative leader-member exchange (RLMX) and relative job performance, and then via being envied by coworkers (Study 1). Results also generally supported the positive and indirect effect of proactive personality on coworker undermining via the same set of sequential mediators (e.g., RLMX and then being envied, Study 2). The indirect effects of proactive personality on coworker helping and undermining (e.g., via relative job performance and coworker envy) were only significant when employees’ prosocial motivation was low (Study 3). This research contributes to a more complete and balanced theorization of the influences of proactive personality in organizations. |
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Jiaqing Sun, University of Illinois at Chicago Wen-Dong Li, The Chinese University of Hong Kong Yuhui Li, Renmin University of China Robert C. Liden, University of Illinois at Chicago Shuping Li, The Hong Kong Polytechnic University Xin Zhang, The Chinese University of Hong Kong |
