Corporate Fake News on Social Media

Using a unique data set on fake news about S&P 1500 companies during 2016–2020, I examine its determinants and consequences as well as the firms’ responses. I find that 4% of the S&P 1500 firms are targeted by fake news, which usually originates on social media. Target firms tend to be more visible, receive lower scores on social responsibility, and exhibit a history of being targets of fake news. On average, target firms experience a 0.22% drop in abnormal returns when the negative fake news is released, and the reduction in stock prices reverses within a week. Finally, firms that take immediate action in dispelling rumors reduce the chance of future attacks by 21% and successfully attenuate the damage to their market value over the next fake news attack, consistent with voluntary disclosures being an effective mechanism for dealing with corporate fake news.