Online Social Networks and Corporate Investment Similarity, a paper co-authored by our school’s Professor Zhang Xueyong, and PhD student Jing Wei, was officially published in the 2021 68th Volume of Journal of Corporate Finance, a world-leading journal on finance.
The rapid growth of technologies has made the public increasingly accustomed to acquiring and sharing information through online platforms. Online social networks have become an important part of people’s daily life. By using mutual friendships of senior officers on Sina Weibo as proxies for online social connections, this paper investigates the impact of online social networks on inter-firm investment decision making.
Prior studies on social connections are mainly focused on traditional social networks such as alumni and working relationships. By using data about senior officers on Sina Weibo, this paper probes into the relationship between online social connections and inter-firm investments. In accordance with the social network theory, this paper proposes that senior officers' online networks have a positive implication for investment similarity across firms. To test the arguments, the authors collect the official Sina Weibo accounts of senior officers in Chinese listed firms and crawl their account information to obtain senior officers' social ties. Specifically, they identify senior officers, who are connected online, as mutual friends on Sina Weibo. In consistency with previous literature, this paper finds greater similarities in investment levels of firms where the senior officers who are mutual friends on Sina Weibo. The results continue to hold after a series of robustness and endogeneity tests. One possible underlying mechanism through which social networks influence corporate investment similarity is that senior officers learn privileged information from their social connections, which is supported by examining the interaction effect of analyst coverage and online social connections. Further research shows that this investment similarity is more pronounced in the condition that company pairs are connected by more reputable senior officers, or in the case of under-investing.
This paper enriches research on social networks, provides supportive evidence that online social connections matter in corporate decision making, and emphasis the informational role of online social connections in order to probe investment policies. It also comes up with findings about the impact of online reputation on senior officers of listed companies, and enriches research on corporate finance.
