What’s the Relationship between Social Media ROE and Business ROI?

Don Stacks

What does Return on Investment (ROI) have to do with social media? This is an important question. To date no one has conducted research that takes social media communication and links it to publicly-traded business success. That, however, has now changed with the publication of Measuring the Impact of Social Media on Business Profit & Success: A Fortune 500 Perspective (2015, Peter Lang publishing). In this book Dr. Cong Li and I demonstrate that the use of corporate social media—owned media as variables reflecting what have come to be labeled “nonfinancial” and serves to set expectations—impacts on business success.

Our research was driven by several questions. The first should seem obvious: “Do businesses use social media?” (They do, but differ by industry.) Second, “Do selected social media platforms impact on business success and, if so, how?” (They do, but more so on the accounting side.) And, third, as strategic communication platforms, how does planned social media use act as elements of return on expectations (ROE)?” (They do, but not across all five of the nonfinancial variables posited). The argument first advanced by me almost 15 years ago posits that nonfinancial variables such as credibility, confidence, trust, relationship, and reputation are public relations variables that can be used to affect the outcome of stakeholder expectations and can be correlated with business/industry financial success. So we set out to prove or disprove the practice of using owned social media on four platforms (chosen via a pretest of a number of social media platforms) impacted on business financial outcomes and how, when defined as nonfinancial indicators, they related to those financial outcomes.

This study examined five years of financial data from 2009 to 2013 of 472 of the Top Fortune 500 companies (28 companies were private and data was not available) taken from two sources: the CRSP and the monthly returns of those companies from the Standard & Poor’s Composite Index. The social media platforms examined were Facebook, Twitter, YouTube, and Google+. Based on a sampling of posts, Key Performance Indicators (KPIs) (e.g., likes, tweets, favorites, response valences, retweets, shares) were coded by independent coders (reliability at .90+),  inputted into IBMSPSS version 22.0, and then analyses were run.

Result highlights suggest that social media do have an impact on business success, but not in the ways thought. First, almost all companies employed social media. Second, there were differences in the results across industries. Third, the financial variable most look for—stock return—was only found significantly related to one platform, Facebook. However, different platforms were impacted on other financial outcomes, such as net income or loss, profit margin, earnings per share. When the data were transformed into the five financial variables, all but confidence impacted on business success. Further, when a company was found active on one platform, it tended to be active on the others as well.

This study is the first to examine the direct impact of nonfinancial, ROE-variables on business success indicators. Future research is looking at the more indirect impact that nonfinancial variables may have ROI and outside the Fortune 500 set of companies. The first step is always the hardest. Re-examining the data from a B to C to a B to B split may help further interpret the findings, as will examinations of other sectors add to our knowledge of social media as a means to establish ROE and their impact on whatever success outcome is of interest.

Don Stacks, Ph.D., is a professor at the University of Miami and a Trustee for the Institute for Public Relations. Follow him on Twitter @donstacks.

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