The Risks and Rewards of Negative Peer Disclosures
Thursday, June 17, 2021
By and large, corporate social media posts are not where you’d expect to find provocative content. Most tend to fall into common categories—product announcements, earnings disclosures, industry awards, and the like. Safe, inoffensive, even predictable, right? Well, yes. But research by Carlson School Associate Professor Vivian Fang has uncovered an emerging —and entirely different— type of post, one that shatters those stereotypes and shows how some companies are using social media to boost their prospects in a cunning and subtle fashion. Fang’s even coined a term for it: negative peer disclosure, or NPD, for short.
According to Fang, the concept is quite simple. “Imagine there are two companies—let’s call them firm A and firm B—that compete in the same industry,” she explains. “If firm A discloses negative information about firm B without mentioning anything about itself in a tweet, we’d consider that a NPD.”
To illustrate her point, Fang offers the example of what happened between Dropbox/Box and Globalscape, two companies that compete in the online file storage space. In 2014, news broke of a Dropbox security flaw that exposed its users’ private data. Globalscape responded by retweeting a news article with this headline: “Dropbox and Box Leak Files in Security Through Obscurity Nightmare.”
“When the negative news came out about Dropbox and Box, Globalscape could have been affected in two ways,” Fang says. “On one hand, it could have been positive, since Globalscape didn’t have any security breakdowns. At the same time, it could also have been negative—the market might have assumed Globalscape was subject to the same technology vulnerability.”
Hence the tweet, which is a classic example of a NPD. “That tweet was a signal to the market,” Fang explains. “It was the equivalent of Globalscape proclaiming, ‘What happened to Dropbox doesn’t apply to us.’”
Globalscape is far from the only user of NPDs. Fang’s research found similar social posts issued by such well-known and successful companies as Nvidia, T-Mobile, Symantec, and others. “Based on the sample we studied, the NPDs were mostly disclosed by firms that were doing well,” Fang says. “Just as with Globalscape, they used NPDs as an implicit form of self-disclosure to send a credible, positive signal to the market: ‘Look, we’re very competitive. We’re not affected by this negative news.’”
NPDs also appear to be a way around the corporate compliance and legal departments scrubbing social posts clean of potentially controversial material before they’re released. When issuing a NPD, you’re not explicitly criticizing your competitors—you’re simply sharing fact-based news reports. As Fang’s research points out, the approach appears to work. Firms using NPDs tend to outperform their non-NPD-using peers.
That said, there are potential drawbacks. For example, the practice could backfire if a company issues a NPD only to later suffer from the same issues it posted about. “Social media sites like Twitter are fully transparent,” says Fang. “So, firms that post NPDs should anticipate increased scrutiny from rivals, consumers, and other market participants.”
There are also potential regulatory risks. However, Fang believes agencies such as the Securities and Exchange Commission are only now starting to grasp the implications of NPDs, and it can be challenging for them to take action. “We’ve learned that some companies have set up intermediaries and used Twitter bots to post NPDs, which makes it difficult for regulators to trace or monitor,” she explains. “I’m also aware of some companies, particularly in Asia, that are using public relations firms to issue NPDs on their behalf. That’s not quite booming in U.S. yet. But, it certainly appears to be an emerging new industry—and one that regulators will need to take a closer look at.”
This article appeared in the Summer 2021 Discovery magazine
In this issue, Carlson School faculty research studies the wisdom of the crowds, the role of religion in the gender wage gap, the impact of cash injections, and highlights many others areas where our research has had an important impact.