Social Network Activities, Future Earnings, and Equity Values

Abstract

We analyze Facebook activities of firms and find that the volume of firms’ Facebook activities is positively associated with firms’ future earnings. We interpret this finding as social network activities increasing firms’ product visibility and brand awareness, and eventually creating a potential market that can generate future earnings. We also find that the volume of firms’ Facebook activities is positively associated with their stock prices, indicating that investors recognize the potential product market benefits from Facebook activities and increase their expectations about firms’ values. Our results suggest that the volume of social network activities is an important non-financial indicator of firms’ values.