Social Media Based Metrics – Significant Indicators of Firm Equity


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I recently read an article titled, “Social Media and Firm Equity Value” by Xueming Luo, Jie Zhang, and Wenjing Duan. I was interested to learn that while it is true that conventional online behavioral measures (web traffic and Google searches) do have a significantly predictive relationship with firm equity value, these relationships are weaker than those seen with social media metrics.

This is a big finding, suggesting that if I am in charge of allocating IT resources, then, yes I want to try and increase traffic to my website, but more impactful on firm equity value is social media. In addition to the impact, the idea of “wear-in” time was analyzed. The authors defined wear-in time as how soon or how late each metric will reach the peak of the predictive value. Social Media wear-in time was much faster than conventional online behavioral measures. For example, negative blog posts had the shortest average wear-in time of only 2.4 days compared to the longest average wear-in time of web traffic of 7.7 days as it relates to firm return.

This article reminded me yet again that unsolicited consumer feedback is quite powerful. From a customer experience standpoint, we already knew social media was important to monitor – yet this study does an excellent job of highlighting and quantifying its importance relative to more traditional online behaviors such as web traffic.

Republished with author's permission from original post.

Stacy Sanders
Stacy's responsibilities include design and analysis of customer and competitive experience studies. Playing the role of statistical analyst, Stacy works with clients and Walker teams to design research studies to successfully address client needs, while also interpreting the data and analyses to formulate executive-oriented findings and recommendations.


  1. Stacy, thanks for sharing a very interesting study! I believe you are referring to this ISM research paper, published March 2013.

    This study provides some validation that companies can’t ignore postings on the Social Web, because they are literally like the canary in the coal mine.

    However, I do worry that some social media proponents will spin this as “see, investing in social media does pay off.” As I read the study, the implication is that management should listen to social media to gain insight, fix issues and engage.

    Social media postings predict firm value, because they are an authentic and real-time communication of what people really think about a firm. But the use social media (by the firm) doesn’t cause or drive firm stock performance. Unfortunately, many companies will continue to use social media as a channel to blast marketing messages, without really acting on the underlying issues that drive performance.

  2. Bob, you make some excellent points. I completely agree that using social media as a channel to just blast messages will not necessarily drive stock performance. As with any feedback (be it social media or customer surveys), it is key to really use the information and take action on what is driving results. Thank you for your comments!

  3. …but, there are also some challenges associated with what was measured, and what was inferred:

    – First, only consumer hardware and software industry companies were studied. The authors’ explanations for this are understandable (they said: “Indeed, most literature on social media has focused on one industry.”); however, that said, inferring universality from these results is open to question and doesn’t inspire an overly high level of confidence. As those of us who are long-time researchers, analysts, and consultants can attest, taking results from a single industry, or a limited number of industries, and claiming broader implications has been a veritable road to research Hades.

    – Second, you’ve used the term ‘unsolicited consumer feedback’ when referring to online social media; however, the authors studied only blogs and consumer ratings. That’s a relatively small proportion of the actual online consumer brand-related content and commentary (data on this subject indicate that only between 1% and 10% of Internet users actually post blogs); and, for example, it doesn’t take into account chat rooms, online communities, etc. So, its representativeness is open to question.

    – Third, comparing their results against ‘conventional online behavioral metrics’, such as Google searches and Web traffic, is fairly passive. More definitive, monetizing and conversion metrics – such as direct evidence of broader purchase or advocacy behavior as a result of material/content harvested by consumers on the Internet – would help with legitimizing the predictive relationship of blogs and consumer ratings.

    At the beginning of the research article, the eMarketer quote (assuming there are data to support this) that “Companies with an extensive social media presence reported a return on investment that was more than four times that of their counterparts” absolutely screams for further information and explanation, or at least a footnote; but none is given (even though the article from which this comes is listed in the Reference section).

    We’re in early days with this kind of research, and certainly in early days for drawing broad conclusions. At the end of the article, the authors state that “…this study provides an initial step toward examining the predictive relationship between social media and firm equity value.” From my perspective, at least, that statement, i.e the predictive relationship, may be (or may not be) true; but, far more definitive research, and in multiple industries, should be conducted, dissected, and reported before suggesting that this is, indeed, a ‘big finding’.

  4. Michael, Thank you for taking the time to comment. Yes, there are limitations to the study, as the authors and you correctly highlight. I understand your reservations about calling this a ‘big finding’ this early in the game, but personally, I think additional research might very well support the authors’ claims. Yes, the study was based on one industry, but I felt the initial results very compelling — it is a ‘big finding’ to consider the possibility that social media can be predictive, especially if used prescriptively as Bob suggested in comments. Thanks again for your comments!

  5. I’m very fond of Charles Dickens’ works. His books contain a lot of life lessons. As Jaggers, the lawyer, said to Pip in Dickens', Great Expectations,”…take nothing on its looks; take everything on evidence. There's no better rule.” For marketers, that's excellent shorthand for taking everything on proven, and well-documented behavior. IMHO, even being generous, and taking your point of view into account, the best this study offers is circumstantial evidence.

  6. Michael, it’s just one study, but I do think the findings are very interesting. Because it provides some evidence that what people say about a brand is predictive of brand value.

    The ACSI has been around for a long time, and concluded the same thing using survey data.

    Now it’s possible that by monitoring social media, brands can use a kind of early warning system on issues that may impact brand value.

    As I’ve said, I see this study as supporting the idea that brands should listen to, and act upon, what they learn in social media.

  7. Bob –

    I absolutely agree that what people say about a brand is, or can be, an element of value prediction. The challenge from my perspective is that using only two elements of online social media – with online social media representing a minority of the influence on customer behavior ( – and from only one industry, though interesting and directional, isn’t yet significant.

    Also, as I’m sure you’re aware, there’s some caution to be exercised around any material which correlates satisfaction scores to loyalty behavior or sales – – and I’ve seen as much negative as positive in studies which address this. Fred Reichheld, himself, found 0.00 correlation when he compared the year-to-year satisfaction score changes from over 200 companies in the ACSI, to their reported yearly changes in sales level. Even given some lag, there should be better correlation than 0.00, so this is kind of sobering. ACSI’s explanation, which seems acceptable, is that satisfaction scores can predict positive value change among leading companies, taken as a group, and negative value change among lagging companies.

  8. Whatever form free customer feedback takes, whether at the point of service provision or afterwards, it’s always got a value. Unfortunately, in my experience, a number of businesses only concern themselves with “high-level” feedback; i.e. complaints bubble up/escalate to either a very senior company person or an external representative/ombudsman/press. By their very nature, complaints at this level are relatively few as a number of dissatisfied customers have either given up/accepted their lot/switched.
    If more organisations actively encouraged and acted on LOW LEVEL customer feedback – though likely to be far more voluminous – they would get a better feel for everyday customer transactions that go wrong. From this they could readily track the recurring, and thus avoidable, themes that are generating bad customer service AND ALSO COSTING THE BUSINESS IN REWORK, AVOIDABLE REPEAT CUSTOMER CONTACT, WASTE AND HIGH CUSTOMER ATTRITION, NOT TO MENTION POOR BRAND REPUTATION.
    Ultimately, all of the above are likely to feed through to the company’s bottom line if ignored.
    Conversely, swift, visible remedial action can do the opposite and bring positive business benefits AND enhance that all-important customer experience and positive word of mouth FREE advertising.


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