PurposeThis paper explores the effects of US President Donald Trump's Twitter messages (tweets) on the stock prices of media and non-media companies.Design/methodology/approachThe authors’ empirical analysis considers all Twitter messages posted by Donald Trump from May 26, 2016 (the date he passed the threshold of 1,237 delegates required to guarantee his presidential nomination) to August 30, 2018. The authors accessed President Trump's tweets through http://www.trumptwitterarchive.com, which provides links to all Twitter messages the President has ever posted. Of the 6,983 presidential tweets during our sample period, the authors select 513 messages that mention companies that are publicly traded in the United States for this study. The selected messages are then classified as having a positive, neutral or negative sentiment. The authors employ a series of univariate and multivariate tests as well as Heckman two-step regressions and partial least squares regressions to examine the effect of the President's tweets on the stock prices of the firms he tweets about.FindingsFor media firms, the authors find that positive tweets have a pronounced positive stock price impact, whereas negative and neutral tweets have little or no effect. For non-media firms, the authors observe the opposite: negative tweets tend to be associated with significant stock price declines, whereas neutral and positive tweets incur weakly positive stock price reactions. To a large extent, these stock price declines reverse on the following day. The authors further find that the President's reiteration of information that is already known by the market incurs an additional stock price reaction. The President's attitude towards the news appears to play a major role in this context.Originality/valueThe authors contribute to the literature by offering various new insights regarding the effect social media has on the stock markets. In addition, this paper expands the emerging strand of literature that explores how President Trump affects the stock prices of firms he tweets about. This paper differs from prior studies in this area by considering a broader range of tweets, by controlling for potential selection biases, by differentiating between Trump's tweets about media and non-media firms and by exploring the impact of “old” vs “new” news based on whether the President repeats information that is already known to the market. If social media posts by single influential people are found to affect markets, they may create trading opportunities for investors and financial managers and risk arbitrage opportunities for arbitrageurs. In the political science field, the findings of this research provide valuable insights into how politicians can employ social media platforms to affect the public, and the differential influence of nominees and politicians in office. Finally, our study gives corporations that wish to back a certain campaign or a candidate in an election a better idea of the possible risks and benefits of their actions, considering that candidates or politicians could post negative messages on social media platforms targeting companies that backed their opponents.
PurposeThis paper explores the effect of natural disasters on the profitability and solvency of US banks.Design/methodology/approachEmploying a sample of 187 large-scale natural disasters that occurred in the United States between 2000 and 2014 and a sample of 2,891 banks, we examine whether and how disaster-related damages affect various measures of bank profitability and bank solvency. We differentiate between different types of banks (with local, regional and national operations) based on a breakdown of their state-level deposits and explore the reaction of these banks to damages weighted by the GDP of the states they operate in.FindingsWe find that natural disasters have a pronounced effect on the net-income-to-assets and the net-income-to-equity ratio of banks, as well as the banks' impaired loans and return on average assets. We also observe significant effects on the equity ratio and the tier-1 capital ratio (two solvency measures). Interestingly, the latter are positive for regional banks which appear to benefit from increased customer deposits related to safekeeping, government payments for post-disaster recovery, insurance payouts and decreased withdrawals, while they are significantly negative for banks that operate locally or nationally.Originality/valueWe contribute to the literature by offering various new insights regarding the effects natural disasters have on financial institutions. With climate change-driven natural disasters widely expected to increase both in terms of frequency and severity, their economic fallout is likely to impose an increasing burden on financial institutions. Large, nationally operating banks tend to be well diversified both geographically and in terms of their product offerings. Small, locally operating banks, however, are increasingly at risk – particularly if they operate in disaster-prone areas. Current banking regulations generally do not factor natural disaster risks into their capital requirements. To avoid the next big financial crisis, regulators may want to adjust their reserve requirements by taking this growing risk exposure into consideration.
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