New Study Focuses on Social Media Data and Investor Sentiment
Finance researchers are watching with interest as postings on social media are increasingly mined for business insights. Assistant Finance Professor Samir Saadi thinks they just might be the new tea leaves of market sentiment, enabling investors to pick IPO stocks with more confidence and avoid investing in over-priced IPOs. Managers could benefit too. “Each year, IPO firms leave billions of dollars ‘on the table’ by underpricing, and pay millions in underwriting fees as a result of uncertainty around their valuations,” says Saadi, who was recently awarded a $74,718-grant from the Social Sciences and Humanities Research Council of Canada for his study, “Social media, investor sentiment, and initial public offerings.” He anticipates that as the means to exploit social media for its predictive power become more efficient and reliable, “managers will potentially save millions of dollars by reducing the risk of capital underpricing and also boosting their negotiation power vis-à-vis underwriters.”
The past five years has seen an acceleration of interest in mining social networks in both academia and industry. What began as a potentially useful vehicle to understand social interaction and information exchange is now a well-established field of research exploring the predictive power of social media and its application in a broad range of areas. One of the emerging trends in capital markets research, for example, is to investigate links between social media and aggregate stock market movement. “For the most part, though, empirical studies in finance have yet to be transformed by applying data mining to social media,” Saadi explains.
This is not for lack of interest in social media, or ignorance about its power. The IPO/capital markets sector recognizes the emerging potential to glean predictive insights from Twitter’s 645 million active users (as of January 2012), the 240 million tweets sent daily, and the more than 33 billion pieces of content shared weekly on Facebook. What the industry lacks is a reliable measure of investor sentiment. But the rise of social networks combined with advances in computer engineering has begun to open “a new frontier,” says Saadi, “in developing reliable scalable and rapid assessments of public sentiment.”
Saadi and his team propose a novel measure of market sentiment, building on recent research showing that social media can accurately capture public sentiment. The researchers will also examine the question of whether market sentiment influences post-IPO investment decisions and long-term stock performance.
As new technologies bring new pools of social media data within reach for study, there’s a huge untapped opportunity for researchers to explore initial public offerings, as well as for firms and investors. In this last group, Samir suggests it’s the individual investors who could potentially benefit the most. In the case of IPO underperformance over the long term, they tend to be on the losing end more than institutional investors, he notes. But they might be able to select worthwhile IPO stocks with greater assurance using the new tea leaves of market sentiment.
Firms with Effective Boards More Likely to Disclose Climate Change Risks, Study Finds
A new study by the CGA-Canada Accounting and Governance Research Centre (CGA-AGRC) at the Telfer School of Management found a positive relationship between effective corporate governance and the likelihood of voluntary climate change disclosures. It suggests that board attributes can influence a firm’s decision to reveal climate change risks and take action to mitigate those risks.
“An effectively governed firm can be expected to voluntarily disclose climate change risks to increase its transparency to investors and enhance its economic performance,” says professor Walid Ben Amar, PhD, CGA, the study’s lead author.
These findings support recent corporate governance reforms in Canada and other countries that aim to enhance board effectiveness through the alignment of directors’ and shareholders’ interests. “Such an alignment favours corporate transparency in the reporting of climate change information, including disclosure of greenhouse gas emissions, climate change risks and opportunities to address them,” Ben Amar says.
The voluntary public disclosure of greenhouse gas emissions requires an operational commitment to track emissions and can be seen as a first step towards the recognition and reduction of the firms’ carbon footprint.
Firms from high carbon emission industries tend to respond to the CDP request for public disclosure of greenhouse gas emission data* less often than firms from low carbon emissions industries. However, their climate change disclosures usually contain more detailed information about the effects of their activities on climate change. High carbon emission industries account for 54% of the firms in the study sample and include automobiles, chemicals, forest products, gas & electrical utilities, oil & gas, mining, pipelines, steel and transportation.
Board Effectiveness and the Voluntary Disclosure of Climate Change Information is authored by professors Ben Amar and Phillip McIlkenny of the University of Ottawa. The study used a sample of 559 observations collected from companies listed on the Toronto Stock Exchange (TSX) between 2008 and 2011. Board effectiveness was measured through the Board Shareholder Confidence Index (BSCI) developed by the University of Toronto Clarkson Centre of Business Ethics and Board Effectiveness. The firms’ climate change disclosure was assessed through data from CDP. The study was published online in Business Strategy and the Environment earlier this year and is forthcoming in a print edition of the journal.
*CDP is a not-for-profit organization that annually requests the largest companies around the globe to disclose climate change-related information by completing a standardized questionnaire.
About CGA-Canada
Founded in 1908, the Certified General Accountants Association of Canada serves Certified General Accountants and students in Canada and nearly 100 countries. CGA-Canada establishes the designation’s certification requirements and professional standards, offers professional development, conducts research and advocacy, and represents CGAs nationally and internationally. CGA-Canada is currently working with the Chartered Professional Accountants of Canada (CPA Canada) to integrate operations under the CPA banner. Unification will enhance the influence, relevance and contribution of the Canadian accounting profession both at home and internationally.
Visit us online at www.cga.org/canada
About the Telfer School of Management
Located in the heart of Ottawa, the Telfer School of Management is the proud academic home of some 4,200 students, 200 full- and part-time faculty members, and 25,000 alumni. Our accreditations from the three most demanding international organizations (AASCB, EQUIS & AMBA) place our school in the top one percent of the world’s business schools.
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Professor Lamia Chourou Recognized for Her Outstanding Doctoral Thesis
Professor Lamia Chourou received the award for Best Doctoral Thesis in business at her convocation ceremony at Queen’s University, where she earned a Ph.D. in Accounting. A Certified General Accountants (CGA) of Ontario Fellow, she also holds a Ph.D. in finance (University of Tunis). Her research focuses on capital markets, and in particular, fair value accounting, corporate governance and executive compensation.
Professor Chourou’s thesis dealt with managerial discretion in estimating fair values. She found evidence indicating that the market to a larger extent trusts fair value estimates by managers of firms located in more religious areas in the U.S. She also found that religiosity matters more when other external monitoring mechanisms are low. Her thesis adds to the new emerging literature on the effect of firm geographic location on several accounting and finance issues.
The Relationship Between Consumer Innovativeness and Purchase Behaviour for Organic Products
New research by professors Ajax Persaud and Sandra Schillo has been published in the best paper proceedings of the Academy of Management Conference, August 1-5, 2014 in Philadelphia, PA.
This study explores the link between consumer innovativeness and purchase behaviour in the context of organic food adoption by examining social identity, social influences, and perceived value. The study’s theoretical contribution is in developing the relationship between consumer innovativeness and adoption behaviour. From a practical perspective, the results highlight the need for marketers to develop a very nuanced understanding of the social networks of potential consumers they may tap into, and thereby identify credible individuals to promote their products. “Essentially, marketers need to develop communication strategies that clearly articulate not only the value of their products but also the social impact of the marketing strategies,” the researchers conclude.
About the researchers:
Ajax Persaud, Associate Professor at the Telfer School, focuses his research on innovation, entrepreneurship, and marketing. His studies have been published in several leading refereed journals. He has authored/co-authored five books including Marketing, 1st & 2nd Canadian Ed. Dr. Persaud received several nominations and awards for teaching and research excellence. He received a Best Paper Award at the 2014 Conference of the Administrative Sciences Association of Canada for his study titled, “Adoption of advanced technology in the Canadian food-processing industry”(with Eric Xuhuchen).
Sandra Schillo, Assistant Professor at the Telfer School, centres her research on innovation, entrepreneurship and their impact. Dr. Schillo’s work is funded by several sources, including the BioFuelNet Canada, a Network of Centres of Excellence (NCE). She has extensive experience completing studies for Industry Canada and many science based departments and agencies of the Canadian federal government on topics relating to innovation and entrepreneurship.
Professor Daniel Zéghal Wins the Lorna Henderson Outstanding Mentor Award
Professor Daniel Zéghal, FCGA has won the Lorna Henderson Outstanding Mentor Award from the Certified General Accountants of Ontario. Dr. Zéghal is a very active member of the academic community and the accounting profession. He is member of the editorial board of number of academic journals. In recognition for his work and his leadership in both accounting research and accounting education and for his contribution to the profession, Professor Zéghal has won many other prizes including the following: Fellow of the Certified General Accountants of Canada, Life membership of CGA-Ontario, member of the International Who's Who of Professionals and Who's Who in Canadian Business. In 2008, Professor Zéghal was named in an international search to "100 CGA's who have made a difference" for having contributed to the excellent reputation of the profession.
