Negative Social Media Sentiments and Capital Structure

Abstract

Research Question: Does negative social media sentiments have implications for a firm’s capital structure? Motivation: Little is known about how social media sentiments affect capital structure, although previous studies have provided information on the detrimental consequences of negative SMS on firm performance, value, financial hardship, and revenue. However, choosing a capital structure is regarded as one of the crucial choices for every organisation. Idea: This study investigates the role of negative social media sentiments (SMS) in shaping the capital structure of firms; namely leverage, cost of debts, and the term to maturity. Data: We sample the United States (US) Fortune 500 firms between 2010 – 2017. The data for this study is collected from the Infegy Atlas social media database (a US company that gathers data from social media conversations), Thomson Reuters’ Asset4 and Compustat. Method/Tools: The pooled ordinary least squares (OLS) regression with robust standard errors technique and the Propensity score matching (PSM) analysis are deployed. Findings: We first study how negative social media sentiments effects capital structure by examining the level of leverage, cost of debts, and the term to maturity of firms. Our results suggest that firms that receive a significant amount of negative SMS will have a higher leverage, cost of debt and term to maturity. We further offer evidence that shows how Corporate Social Responsibility performance and firm size influence the negative SMScapital structure nexus. Contributions: This the first study to examine the impact of negative SMS on capital structure. Our findings from this research add to the emerging debate on the role of SMS in affecting firm financial outcomes and performances. Our findings provide novel perspectives that carry notable implications for corporate strategies concerning capital structure and enhance the comprehension of stakeholders, including investors and creditors, regarding the factors influencing a firm's capital structure.