Effect of brand social media adoption on brand performance
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The continuous emergence and decline of social media platforms present challenges for businesses in planning, investing, and justifying their investments in these platforms. Observations have noted that social media often underperforms compared to firm expectations. While existing academic marketing research typically assumes social media adoption and focuses on the deployment of tactical decisions (e.g., when to post, what to post, achieving virality, or managing brand firestorms), the causal impact of social media adoption on firm performance as a strategic decision has not been addressed. Drawing on theories such as the resource-based view (RBV), and organizational learning, this study aims to address three questions related to a firm's strategic decisions: (1) What is the causal impact of social media adoption on short- and long-term firm performance (i.e., financial performance, including abnormal stock returns, sales growth, ROE, Tobin's Q, total Q, and non-financial performance, such as firm innovativeness)? (2) What are the mechanisms that drive short- and long-term performance? (3) What factors influence the effectiveness of a company's social media adoption? Utilizing event studies in both short-term and long-term windows, this research examines stock market performance at the time of social media adoption by firms. Additionally, the causal impacts of social media adoption on firm performance are investigated through an instrumental variable fixed effect, where the number of social media adoptions is considered treatment intensity, and the instruments include peer effects on social media adoption and platform popularity. Drawing on a unique dataset specifically curated for these research questions, this study discovered a positive long-term impact of social media adoption on firm performance. However, this effect materializes only after a firm has adopted multiple platforms, more specifically, after the third adoption. This result can be attributed to the learning effect and risk diversification that firms must endure to experience the reversion of the adoption effect (from negative to positive), in line with the organizational learning theory and RBV. Furthermore, the findings reveal that in the short run, regardless of the number of platforms adopted, firms consistently yield positive returns. The differential results between the long-term and short-term effects help explain the social media paradox, wherein firms expect positive results from social media adoption but often face underperformance. Lastly, an intriguing finding emerged that B2C firms do not experience the initial negative adoption effect of social media (compared to B2B firms), but the final adoption effect magnitude (i.e., the fourth adoption) is smaller than that of B2B firms. This study offers valuable insights into the strategic decision-making process of firms regarding social media adoption and its effects on firm performance.
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Ph. D.