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46 ORGANIZATIONS AUTUMN 2013 STANFORD BUSINESS The takeaway is that Twitter can help reduce the information disadvantage of small companies. BOUNDARIES Specifically, they looked at the spread between bid and ask prices, or the difference between prices offered by buyers and sellers. Narrow spreads mean that a stock is more liquid and easier to trade, often because investors are more confident about what they know. High-visibility companies with lots of shareholders usually have narrower spreads than lesser-known companies, an indicator of the “information asymmetry” that plagues the lesser-known companies. Navigating through the Twitter data took some detective work. The researchers had to identify the Twitter “handles” for each of the companies, round up all their tweets, and then weed out those that didn’t link back to press releases and other blog posts. They also tabulated how many times people actually clicked on the tweet’s hyperlink. Once they had all that, they correlated the tweets with trading data immediately before and after each news announcement. For the record, the average company in the study had 28,318 followers over the period (Twitter was still in its infancy). Companies sent an average of 46.9 tweets with links per month, and each link was clicked an average of 141 times. What the researchers found was that bid-ask spreads narrowed significantly for lesser-known companies when they tweeted about their news. Bigger companies that already enjoyed visibility didn’t see any impact. In other words, tweeting helped level the information playing field at least a bit. Blankespoor, Miller, and White also looked at whether Twitter had a particular effect on smaller investors, who don’t have as much money for information collection as institutional traders. In theory, Twitter might boost their activity. But the data doesn’t show that. Tweeting didn’t seem to have any meaningful impact on the share of trading in small lots. The big takeaway, Blankespoor says, is that Twitter and other “direct access information technologies” can help reduce the information disadvantage of small companies. It isn’t just the message that’s important. It’s how widely you can disseminate it. Δ Elizabeth Blankespoor is an assistant professor of accounting at Stanford GSB. She discusses the research at

Government … Politics ... Borders ... Finance ... Networks 47 World BOUNDARIE IES Ben Wiseman “Information can help create conditions that encourage the election of better leaders and dampen ethnic rivalries.” —Katherine Casey, PAGE 48