When Do Social Media Amplify the Impact of Disclosure in a Product-Harm Crisis? Evidence from Product Recalls and Investor Reactions

초록

This study examines the role of social media in reducing information asymmetry among investors during corporate product-harm crisis events, specifically consumer product recalls. Utilizing recall announcements issued by the U.S. Consumer Product Safety Commission, this study examines how social media dissemination influences stock market reactions. By measuring the number of times each recall announcement was shared through a CPSC-supported platform to social media outlets, the study performs an event study using cumulative abnormal returns over a two-day window surrounding the announcement. The findings reveal that increased social media sharing is significantly associated with more negative abnormal returns, indicating that broader information dissemination enhances investor awareness and market response. Interestingly, this effect is especially pronounced in cases of passive recalls where the firm acted only after incident reports, suggesting that public sentiment becomes more negative when firms appear reactive rather than proactive. Moreover, the study suggests that comprehensive measurement of social media usage may yield more accurate assessments than analyses limited to major platforms such as Twitter or Facebook. Contrary to common assumptions, most firms do not use social media actively during recall events. These results emphasize the transformative role of social media in corporate disclosure, suggesting its potential to reduce information gaps and increase market efficiency in times of product-harm crisis.

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