RALEIGH, N.C. (WNCN) — A stream of tweets can hurt a company on Wall Street.
A North Carolina State professor who studied billions of tweets found companies that face a backlash on Twitter because of supply chain problems often pay for it with a drop in their stock price.
“Clearly, social media matters,” said Sebastian Heese, a department head and professor of supply chain management at N.C. State’s Poole College of Management.
“It has an impact on your financials,” he added. “So you cannot ignore it.”
Heese looked at more than 2 billion tweets about 213 supply chain glitches involving 150 companies from 2013-17, using an algorithm to measure activity and track keywords that reflect the sentiment of those tweets.
“The question … is, does the reaction of the public on social media, on Twitter, affect how a supply chain problem or glitch affects stock market performance?” Heese asked.
He found that, yes, it can.
“If people react and more strongly get involved,” he said, “maybe there’s some ongoing interaction or moderation effect that the effect of a glitch on a financial performance of a firm on stock market is moderated or changed, maybe exacerbated by Twitter and social media. And that’s what we study.”
Plenty of previous studies have explored the connection between social media activity and companies’ stock prices. This one focuses specifically on supply chain problems faced by those businesses.
“Supply chain problems, even though they are invisible to the general public who does not care, have … a notable effect on supply chain on stock market performance,” Heese said. “And so now … social media is fairly recent in terms of pervasiveness, and that’s what we wanted — like, that’s the reaction of the public, of all stakeholders, also financial participants in the markets. Does it affect, exacerbate these consequences, right?
“News is no longer hidden in the Wall Street Journal and some article,” he said. “They are out there, and vastly distributed among multiple stakeholders. And we found that, yes, it does.”
The idea was sparked by an incident in 2017 when a passenger was forcibly removed from a United Airlines flight because it was overbooked. Research showed an ordinary overbooking would cost the company $1,000 but the impact of the incident going viral on social media might cost the company $800 million in market value in one day.
“That’s a supply chain glitch,” Heese said.
And also that year, Apple delayed the release of its iPhone 10 because of production delays.
“Again, there was a market reaction,” Heese said. “And so what we felt is, customers react — not only customers or stakeholders react, that there’s more participation. They react on Twitter.”
The main lesson for companies, Heese said, is to be proactive on social media and recognize the effect it could have on the bottom line.
“If you are active as a company with its own Twitter account, what you can affect is the sentiment of those tweets,” Heese said. “By tweeting already ahead of the event, if you’re aware of it … and have proactive tweets out and maybe give it a sort of a positive spin to try to avoid negative backlash.
“It has an impact and you can be active and should be active and proactive to mitigate the consequences,” he added.