Social media websites like Twitter can play a key role in increasing visibility for small businesses, according to a recent study led by Elizabeth Blankespoor, associate professor of accounting at the Graduate School of Business.

Blankespoor, who collaborated on the study with University of Michigan Professors of Accounting Gregory Miller and Hal White, found that companies who used Twitter to communicate with investors experienced an increase in the liquidity—the demand at market value—of their stocks.

“The big takeaway is that [Twitter] is being used as another channel to get information out, and it seems to be effective in getting information to a broader set of investors,” Blankespoor said. “This isn’t a niche area. This is something that firms can use in their normal investor communication, in combination with other ways to disclose information.”

Blankespoor emphasized that, while other researchers have studied how social media can be used to predict market returns, her team’s approach was “pretty unique” in focusing on the impact of social media in market communications.

The researchers first discussed the project in March 2009 when Blankespoor, at the time a second-year Ph.D. student at the University of Michigan, offered to help Miller with research.

Once Miller, Blankespoor and White realized a shared interest in how firms communicate with their investors, the trio decided to look into the impact of relatively new forms of communication.

“We were just talking about some of the interesting changes that are occurring, and the assumptions that people make about how communication flows but how technology could change that,” Miller said. “Through those discussions, we started thinking about how this new way of being able to reach out and connect with your investors can really change things.”

The trio chose to focus on Twitter because Blankespoor said that the social media platform “really started taking off and getting a lot of attention,” and had also received coverage in investor relations publications.

“Our first response was, ‘Twitter, really? That can be used for investor relations?’” Blankespoor said. “We went and just started investigating it because we wanted to understand if this is really something that is being used and can be useful for firms.”

The team collected data from mid- to late 2009. According to Miller, collecting data from financial markets was relatively easy, but gathering Twitter data was “one of the big challenges in the paper.”

“We had to go out and learn about the structure of Twitter [and] how they kept the data,” he said. “Basically we did a combination of setting up computer programs to help pull the data down, and also used hand-collection processes where we hired [University of Michigan] students to go collect some of the data as [research assistants].”

The team presented the first version of their paper at colleges and universities across the world, including the Massachusetts Institute of Technology (MIT) and the London Business School.

Miller said that, after receiving feedback on the initial paper, the team collected more data on items such as whether links posted on Twitter impacted website traffic. In the second round of tests and analysis, the researchers focused on the benefits of using Twitter for smaller firms.

“If you’re just a slightly smaller firm, visibility issues kick in relatively soon in market cap,” Miller said. “They can’t be sure when they put information out that it is getting to everyone they want it to. What we saw was the benefits [from using Twitter] really come in for these mid-size or smaller firms.”

While Miller and Blankespoor said that their conclusions indicate that all firms should consider using social media websites like Twitter, they emphasized that their study, which will likely be published in The Accounting Review in January 2014, also offers implications for investors.

“They might want to get on Twitter, too, because this is a way to lower their search costs to get information about firms and increase the investment set that they can follow,” Miller said. “They can feel more certain about following smaller firms, and not worry that they are not getting information about them.”