The effect of social media activity on financial performance of firms listed at the Nairobi Securities Exchange

Abstract

Social media has pervaded and revolutionalised how people communicate and interact; it offers an invaluable tool to businesses to get their products out, conduct market research and engage various stakeholders in ways not witnessed before. It acts like a local search engine within the social network; users conduct searches such as "Pizza places in Nairobi's CBD that my friends like" By searching through SM the experience is completely different. Users no longer mindlessly pick on a restaurant for instance in the hope that it will be great; they are able to see what places their friends like. Businesses must be cognizant of these developments and align themselves to these realities. The study hoped to profile the effect of social media activity on the financial performance of firms listed in the Nairobi Securities Exchange. This was done by relating social media activity such as likes, shares, comments, following, tweets, and re-tweets, to financial performance in a model. The findings were largely inconclusive a fact attributable to the experimental stage SM is at in most firms; a measly 5.9% of performance would be attributed to SM. The study found that likes, shares, tweets, retweets, favourites etc do not quite measure social media activity and would therefore not be a robust basis for analysis. Some tools have been advanced to this end including Klout, Kred and Peer index all of which are largely in experimental phases; future studies may thus gain more insight by trying these and other tools that come up every day with the increased adoption and spread of social media. The study recommends that firms reconsider what social media will mean to their value proposition with attention being had to customer relationship management, access to wider markets, market research, responsiveness to customers and brand building. As regards policy, interconnectivity comes with privacy concerns, cyber crimes, online bullying and patent & property rights enforcement and infringement; a purely legal approach while very necessary can't achieve much and there's need therefore for a multipronged approach that borrows from social psychology, business and education amongst others.