Social Media and Corruption

Abstract: In democratic countries, traditional mass media provide an important mechanism of uncovering corruption and fostering accountability. Can new media such as blogs play a similar role in authoritarian countries, where offline media are often suppressed? We study consequences of blog postings about corruption in state-controlled companies by Russian activist Alexei Navalny. We identify a negative impact of the blog postings on stock return of these companies, using five-minute within-day data. We also find long-term effects of the posts on stock returns, trading volume, and volatility. We use data on distributed denial-of-services (DDoS) attacks on related blogs to confirm that our results are not driven by unobserved heterogeneity. We observe that after the audience of the blog becomes sufficiently large the effect of blog postings changes its sign from negative to positive, possibly reflecting the increased probability of a remedial action by the government.