The Power of Visuals in Financial Communication
The Securities and Exchange Commission (SEC) promotes the use of graphics in financial disclosures, a practice deeply rooted in human history, from ancient cave paintings to modern-day instruction manuals. Recent research from the Review of Accounting Studies reveals that corporations might use this strategy to momentarily enhance stock performance via social media. This practice of incorporating visuals—images or videos—into tweets about earnings significantly heightens attention compared to text-only messages, a tactic that seems to benefit corporate executives more than it does shareholders.
Visual Strategies and Investor Response
The research highlights that companies often opt for visuals in tweets when announcing favorable earnings, especially when such earnings are unexpected and not indicative of long-term trends. This selective use of visuals can be seen as an opportunistic move by management. While it’s effective in the short term—causing a stock price jump of about 2% over the market return shortly after the announcement—this increase typically reverses by the time the next earnings report is due, suggesting an investor overreaction to these enhanced announcements.
Implications of Visual Enhancements in Corporate Tweets
The use of visuals in tweets not only captures investor attention but also significantly increases the likelihood of a tweet being shared, with visually enhanced tweets being retweeted 5.7 times more than those without visuals. This increased visibility, however, is a double-edged sword. While it aligns with the SEC’s goal of improving investor understanding through clearer data presentation, it also opens the door for management to capitalize on short-lived stock price boosts. This exploitation can occur particularly when management uses these visual tweets to influence stock prices during periods of good earnings that are not expected to last.