Information Asymmetry and Share Prices: Analysis of the Use of Social Networks in the Brazilian and U.S. Capital Markets

Abstract

Increasing globalization has meant the internet becoming ever more part of the routine of people around the world. With the evolution of the internet, social networks have emerged in order to facilitate communication between people, communities and even between corporations. Social networks offer companies a way of instantly releasing information, allowing those who use this information greater flexibility when searching for news about the companies in which they have invested or wish to invest. In this context, the objective of this study was to analyze how social networks (Facebook, Twitter and Youtube) affect levels of information asymmetry and the pricing of shares for Brazilian and U.S. public companies during 2012. To achieve the proposed goal, the conceptual framework of the Ohlson model (1995) was used to verify whether the information posted on social networks affects the pricing of shares, and share price volatility was used as a proxy for information asymmetry. The sample included 170 Brazilian companies listed on the BM&FBOVESPA and 100 companies listed on the U.S. stock market in 2012. The results show that social networks can affect levels of information asymmetry in these markets, but only "unofficial" Facebook affects the pricing of shares for companies in the Brazilian stock market, although sensitivity analysis indicated that the groups that use and those that do not use Facebook do not exhibit different average returns. Thus, investors should not use this information to devise strategies to generate better returns.