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Social Media Based Metrics – Significant Indicators of Firm Equity

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.

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