Date of Conferral
The mainstream quantitative models in the finance literature have been ineffective in detecting possible bankruptcies during the 2007 to 2009 financial crisis. Coinciding with the same period, various researchers suggested that sentiments in social media can predict future events. The purpose of the study was to examine the relationship between investor sentiment within the social media and the financial distress of firms Grounded on the social amplification of risk framework that shows the media as an amplified channel for risk events, the central hypothesis of the study was that investor sentiments in the social media could predict t he level of financial distress of firms. Third quarter 2014 financial data and 66,038 public postings in the social media website Twitter were collected for 5,787 publicly held firms in the United States for this study. The Spearman rank correlation was applied using Altman Z-Score for measuring financial distress levels in corporate firms and Stanford natural language processing algorithm for detecting sentiment levels in the social media. The findings from the study suggested a non-significant relationship between investor sentiments in the social media and corporate financial distress, and, hence, did not support the research hypothesis. However, the model developed in this study for analyzing investor sentiments and corporate distress in firms is both original and extensible for future research and is also accessible as a low-cost solution for financial market sentiment analysis.