The Chilling Effect of Regulation FD: Evidence from the SEC Endorsement of Social Media

We find evidence consistent with the notion that the broad non-exclusionary disclosure requirement of Reg-FD inhibits the adoption of new disclosure technologies. Our analyses exploit unanticipated SEC guidance (“Reg-SocMedia”) that outlined how social media channels could be used in compliance with Reg-FD. Overall, we find substantial changes in corporate Twitter usage to communicate financial information using a large hand-collected and coded sample. We document a non-transitory stock price response of 25 basis points to financial tweets following Reg-SocMedia, compared with no detectable response before. This differential price response occurs on days with no concurrent disclosures, and is stronger for firms with more Twitter followers. We use a variety of alternative specifications and placebo tests to provide assurance that the effects we document are attributable to Reg-SocMedia rather than time-series changes in disclosure policies. Collectively, our findings suggest that firms were reluctant to use Twitter to communicate value relevant financial information without SEC guidance, consistent with the concern that Reg-FD has a “chilling” effect on corporate disclosures.