In the era of mobile internet, social media has become the main platform for people to transfer information. Microblog, an unofficial and informal communication channel with low cost and great convenience, provides entrepreneurs a chance to move from the backstage to the front-stage of firms.
Unlike traditional information transfer mechanisms such as TV and newspapers, Microblog is an informal information transfer mechanism. It is an important supplement to the formal information transmission mechanism of firms, which can effectively alleviate the information asymmetry between investors and firms. By using Microblog, an entrepreneur has more initiative in disseminating information, such as what information to release, when to publish and how to express it, etc. At the same time, Microblog can not only spread the information to the fans and readers without attenuation and distortion, but also receive comments and feedback from them. Another advantage of Microblog is that the entrepreneur can express or share his or her outlook, viewpoint and even the mood in Microblog, which shortens the distance between the entrepreneur and information receivers. The kind of person the entrepreneur @ shows their social capital. Investors and creditors are sensitive to the information of Microblog, by which they understand the entrepreneur and his or her financial decisions. So, we expect that when other things being equal, the cost of equity of firms with Microblog-entrepreneurs will be lower than the cost of equity of firms without Microblog-entrepreneurs.
In addition to the dummy of Microblog, we use the number of Microblog posts, comments, forwards and likes to measure the information content of Microblog. We find that the Microblog of entrepreneurs plays a significantly positive role on reducing equity cost. This informal information transfer effect is stronger when firms are located in the regions with lower marketization and in the case of weak external information environment. Further tests show that the more personal information on Microblog, the more Microblogs including @, or the more positive sentiment in the content of Microblog, the more equity cost is reduced.
We contribute to the literature in several ways academically. First, coping with the development of We Media, we classify the information transmission mechanism into formal and informal. Second, we investigate the behavior of entrepreneurs on firms’ equity cost and fill the gap in the literature. Third, we offer a new idea and method to the front-stage behavior of entrepreneurs. In practice, Microblog of entrepreneurs is not just a simple individual behavior; it bears an important organizational purpose, and every word and action of entrepreneurs may affect firms. The results of this paper provide implications for the information transmission choice of entrepreneurs in the new We Media era.