The impact of social media initiatives on operational and financial outcomes : two empirical studies

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The impact of social media initiatives on operational and financial outcomes : two empirical studies


Author: Lam, Kin Sang
Title: The impact of social media initiatives on operational and financial outcomes : two empirical studies
Degree: Ph.D.
Year: 2015
Subject: Social media -- Economic aspects.
Online social networks -- Economic aspects.
Social media -- Social aspects.
Online social networks -- Social aspects.
Hong Kong Polytechnic University -- Dissertations
Department: Dept. of Logistics and Maritime Studies
Pages: xii , 148 pages
Language: English
Abstract: With its growing popularity and influence, online social media, such as Facebook and Twitter, is transforming politics and social norms, and the way business is conducted. Although this emerging social media phenomenon has attracted much attention of practitioners and researchers, it is still not well understood whether and how firms can gain any operational and financial benefits from their social media initiatives. We conduct two empirical studies to address these questions. Our first study focuses on firms’ use of social media for sales and marketing, which is termed as social commerce. Considering the ability of social commerce to facilitate social and visible communication among firms and customers via social media, we draw upon uncertainty reduction theory from the communication literature to argue that social commerce benefits firms by reducing the uncertainty faced by customers. Following the uncertainty reduction logic, we further postulate that the effectiveness of social commerce in reducing uncertainty depends on the information warrant embedded in the communication as perceived by customers. An event study based on 275 social commerce initiatives announced between 2006 and 2011 supports our arguments. It shows that social commerce announcements increase the market value of firms, especially when firms' products bear high uncertainty. Moreover, we find that both communicator-specific warrant, such as firm reputation, and channel-specific warrant, such as social media platform credibility, enhance the value creation of social commerce. Therefore, our first study offers an uncertainty reduction explanation on the business value of social commerce initiatives and provides empirical evidence in terms of increased market value.
Our second study concerns firms' overall social media efforts, without limiting to sales and marketing. Although social media has been widely viewed as a new commerce channel for the sale of products and services, its applications and implications beyond sales and marketing, especially in such areas as operations and innovation management, are emerging and worth further investigation. Therefore, our second study intents to understand whether and how firms' social media initiatives are able to improve their operational efficiency and innovativeness, two critical operational outcomes of firms. Viewing firms' social media initiatives from a social capital perspective, we argue that social media enables firms to facilitate faster information flows and better knowledge sharing across their internal and external social networks, resulting in operational efficiency and innovativeness improvement. However, the degree of the improvement might be contingent on the richness, diversity, and quality of the information and knowledge being exchanged, which in turn depend on the structural and relational embeddedness of firms' ties with stakeholders in the social networks. Based on data collected from multiple sources, we construct a sample containing 1,096 firm-year observations and employ the system generalized method of moments (GMM) estimator for dynamic panel data (DPD) to test our arguments. The test results show that firms’ social media initiatives improve their operational efficiency and innovativeness. Moreover, we further find that the improvement due to social media initiatives is more positive for firms with more geographically diversified stakeholders (structural embeddedness) and better stakeholder relationships (relational embeddedness). Therefore, our second study explains the ability of social media initiatives to unlock the potential of firms’ embedded social capital and transform firms into ambidextrous organizations. Taken together, our two studies highlight the critical role social media plays in improving firms’ operational and financial outcomes, and also reveal the underlying factors that make the improvement vary across firms. The theoretical perspectives and the empirical evidence documented in our research provide important implications for future social media research and for firms to leverage the emerging social media technologies to gain competitive advantage.

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