Voluntary corporate disclosure in the Era of Social Media

Conceptual and theoretical background – Over the time, several authors have provided many contributions on the topic of voluntary corporate disclosure (Dierkens, 1991; Eng and Mak, 2003; Fishman and Hagerty, 2003). Increasing attention of managerial and economic studies on the topic of corporate disclosure was principally addressed by Signalling Theory (Connelly et al., 2011), Capital Need Theory (Sale et al., 2007), and Legitimacy Theory (O’Donovan, 2002). The signalling theory (Spence, 1973) highlights that the primary objective of corporate disclosure is to inform investors and market about the quality and the value of a company. According to this assumption, some studies have empirically analysed the relevance of voluntary corporate disclosure, in order to emphasize its effect on the cost of capital (Botosan, 2006). Building on this evidence, some authors underline that companies with a high standard of voluntary corporate disclosure show a lower cost of capital (Botosan and Plumlee, 2002, Verrecchia, 2001). This evidence is confirmed by studies of Gietzmann and Ireland (2005) and Francis et al. (2008) that point out negative relation between voluntary disclosure and the cost of capital. Following the capital need theory, Healy and Palepu (2001) emphasize that investors’ perceptions of companies are significant to corporate managers expecting to issue public debt or equity. Barry and Brown (1986) and Merton (1987) assert that managers, aware of the information asymmetry between them and outside investors, are willing to pay the premium price that investors demand for information risk related to companies. They underline that to reduce their cost of capital they need to reduce information risk acting on voluntary corporate disclosure. Finally, legitimacy theory affirms that the existence of company is motivated by the alignment of its values with the values of society in which it acts (Shehata, 2014). This theory builds on the society’s perception (Chambers, 1961) and it underlines how decision makers could be compelled to disclose information in order to modify the external users’ opinion on company (Cormier and Gordon, 2001). More specifically, it highlights that there exists a ‘social contract’ between firm and society and only respecting this contract the company is legitimated to act (Yi et al. 2011). According to Deegan and Samkin (2009) companies should ensure that their operations are respectful of the bounds and norms imposed by the context because only respecting these indications companies can survive (Guthrie et al., 2006). The studies on voluntary corporate disclosure have offered many contributions in advancements of knowledge on the effect of traditional voluntary corporate communications on corporate performances (Healy and Palepu, 2001, Frankel et al., 1999) but they have not adequately investigated possible contributions offered to corporate performances by informal communication and by social media (Hanna et al. 2011, Mangold and Faulds, 2009). Social media represents an interesting field of observation to understand how stakeholder react to company communications (Kaplan and Haenlein, 2010). They could provide to firms a relevant way to communicate directly with their stakeholders opening to the opportunities to receive direct feedback and to involve stakeholder in the definition of communication actives (Blankespoor et al., 2013; Barile et al., 2013; Saviano and Caputo, 2013). They appear to be a field rich of opportunities and of risks that require to be better investigated (Veil et al., 2011). Purpose – The voluntary corporate disclosure is acquiring a prominent role in knowledge economy (Dhaliwal et al., 2011; Eng and Mak, 2003; Francis et al., 2008). Several authors underlined the opportunities to involve stakeholder in companies’ activities transferring the correct information in correct ways to them (Morsing and Schultz, 2006; Barile et al., 2015; Di Nauta et al., 2015). Building on this reflection, the paper attempts to analyse in which way voluntary corporate disclosure based on most used social network (Facebook and Instagram) impacts on companies’ performances. Analysing the posts shared by the 50 best performing European companies in the last three years, the research analyses possible relationships between social media voluntary disclosure (SMVD) and firms’ economic performances. Methodology – The paper builds on a literature review on the topic of voluntary corporate disclosure and social media in order to define a possible conceptual framework to analyse the contribution of SMVD to firms’ economic performances. From the analysis of literature some relevant dimensions such as frequency, consistency, previous activity and stability are derived to explain in which way voluntary corporate communication based on social media is related to Return of Sales (ROI) in a sample of European companies. Hypotheses herein are tested via Structural Equation Modelling (SEM) and the results are discussed both from theoretical such as from practical point of view. Values and originality of the study – The paper offers a multidisciplinary framework to investigate role and contribution that social media can offer to the firm’s strategy of corporate disclosure. It underlines risks and opportunities related to the use of Information and Communication Technology to communicate with stakeholder and to transfer knowledge and information to them (Joshi et al., 2007). Conceptual framework is tested trough empirical observation on a sample of European firms in order to investigate possible relationships among firm’s activity on social media and their economic performances. Managerial and practical implications of reflections and observations herein are analysed in order to offer first stimulus to the debate on the contribution of Information and Communication Technology to the knowledge management and communication strategies of firms.