Regulating via Social Media: Deterrence Effects of the SEC's Use of Twitter
57 Pages Posted: 2 Nov 2021 Last revised: 3 Jan 2024
Date Written: January 2, 2024
Abstract
We evaluate the effect of financial regulators’ social media use on misconduct by regulated entities. We study whether misconduct by firms and investment advisors declines around the staggered launch of Twitter accounts by regional offices of the U.S. Securities and Exchange Commission (SEC). Even though the tweets repackage information available on the SEC’s website, we find a reduction in opportunistic insider trading and financial misreporting for firms, and a reduction in customer complaints against investment advisers. Consistent with the tweets making enforcement actions more salient and widely disseminated, this deterrence effect is concentrated among (i) regional SEC offices with more Twitter followers and (ii) investment advisers with more retail clients. In addition, we find Twitter adoption expands local press coverage of the SEC’s work and the stock market reacts more strongly to SEC enforcement actions. Taken together, our results suggest that financial regulators’ use of social media, a relatively low-cost intervention, helps deter misconduct.
Keywords: Financial Regulator, Social Media, Corporate Misconduct
JEL Classification: G18, G20, G28, K2
Suggested Citation: Suggested Citation