Internet Real-name System Reform And Social Media Information Effec

The rapid development of social media has influenced all aspects of our lives,and social media is increasingly used in capital markets,especially a type of social media specifically for stock investors has emerged and is growing rapidly.The role of social media in capital markets has been explored by many scholars,but the findings diverge.Some literature has found that social media posts are informative and effective in predicting company stock prices and unanticipated earnings(Antweiler and Frank,2004;Chen et al.,2014;Bartov et al.,2018).However,at the same time,some scholars have found that there is false and noisy information in social media that undermine the effectiveness of capital markets(Sabherwal,2011;Jia et al.,2020;Cai et al,2021).Based on the above studies,this paper first explores what role social media plays in the Chinese capital market based on the Chinese institutional context.Unlike Western countries,China’s capital market is a retail market.On the one hand,the participation of many retail investors in the capital market increases the diversity of information sources in the capital market,which is more conducive to the formation of " crowd wisdom" and improves the overall information content of social media.However,on the other hand,when there is a high proportion of retail investors in the capital market,institutional investors can gain more by spreading false information and manipulating stock prices through social media,which leads to a lack of information content in social media as a whole.Therefore,this paper first explores whether social media provides useful information to the capital market in the Chinese institutional context.Specifically,the paper examines(1)whether social media as a whole is informative and effective in predicting firms’ future earnings in the Chinese institutional context?(2)Do investors trust the information in social media and do they actually use the information in social media when making investment decisions?(3)Under what circumstances is the overall information content of social media higher? Under what circumstances do investors use information in social media to a greater extent?Using Eastmoney Guba,a mainstream social media in China dedicated to stock investors,this paper finds that(1)in the Chinese institutional context,social media has an overall information content,as evidenced by the sentiment of social media posts prior to company earnings announcements,which can effectively predict a company’s quarterly unanticipated earnings.(2)Investors do use information in social media when making investment decisions,as evidenced by the fact that the number of social media posts before a company’s earnings announcement significantly decreases a company’s earnings response coefficient(ERC),while the number of social media posts on the day of a company’s quarterly earnings announcement and the next day significantly increases a company’s earnings response coefficient(ERC).(3)Cross-sectional tests show that the higher the number of posts and the higher the quality of posts,the stronger the predictive power of social media post sentiment;when the complexity of the company’s business is low and when social media users are more familiar with the company,the stronger the predictive power of social media post sentiment;when economic uncertainty is high,the higher the level of investors’ use of social media;for companies with more retail investors,the more influenced by The stronger the influence of social media for companies with more retail investors.Another important institutional feature of China compared to Western countries is the presence of a strong government.How do governmental factors affect the information effect of social media? This paper explores this question using real-name reform as research setting.Real-name reform refers to the requirement that all social media users must complete real-name authentication before they can post on social media platforms.Therefore,after the real-name reform,the government can access the personal information of each social media user in the real world.This may have several effects: First,the cost of regulation is reduced and the risk of users being punished is increased,thus it can weaken the incentive of users to post false information ex ante and improve the information content of social media.Second,the increased risk of "misinformation" for social media users posting normal information reduces the incentive for social media users to post useful information and weakens the information content of social media.Finally,as the government strengthens regulation,which is tantamount to guaranteeing the authenticity of information in social media,investors may have a higher level of trust in information in social media and use more information in social media when making investment decisions.The empirical results of this paper show that the "chilling effect" on social media users dominates after the reform of the real-name system,which weakens the incentive of users to post information in social media platforms and reduces the overall information content of social media.At the same time,however,the real-name reform has increased investors’ trust in social media information and led to greater use of social media information in making investment decisions.First,this paper is a contribution to the existing literature on the information effects of social media.Existing studies on the information effects of social media are mainly based on the Western institutional context and examined using the major Western social media.However,the Chinese context is somewhat different from the Western institutional context,so it is necessary to separately test whether social media can still play an informational role in the Chinese capital market.In addition,compared to the existing literature,this paper is more comprehensive in its examination of the information effect,focusing not only on the information content of social media,but also on the use of social media information by investors.Second,this paper introduces government factors into the study of social media information effects.China has a strong government,which makes it a good scenario to study the effect of government factors on social media information content.The research in this paper shows that when the government has access to the real identity information of social media users,it can have a chilling effect on social media users,weakening the willingness of social media users to post information in social media and thus reducing the information content of social media.However,at the same time,more government regulation of social media will strengthen public trust in information in social media and increase the degree to which social media information is used.Thus,the research in this paper enriches,to some extent,relevant studies on how government influences the information effects of social media.The practical implication of this paper is that the government needs to consider the possible costs more thoroughly when accessing and using public data.It should also clarify the scope of use of such data to the public,do a good job of data protection,and work to eliminate public insecurity.At the same time,the research in this paper suggests that the government can,to a certain extent,substitute reputation mechanisms to address the more difficult problem of gaining trust in information in social media.