Accounting, Edition 55

Online: Videos to Get Closer to Investors

En lineaBy: Norma Leticia Leal

In April 2013, the regulatory marketing body in the United States (SEC, Securities and Exchange Commission), taking as its precedent the Regulation Fair Disclosure, accepted social media communications as “perfectly acceptable methods” to disclose company information. The disclosure must meet two conditions: first, companies must give advance notice to investors as to the social media the business news will be disclosed; and second, access cannot be restricted to a particular group.

The article “Facebook and Twitter: How to Use Them to Make Good Investment Decisions?” published in Dirección Estratégica (May 2014) analyzed the increasingly widespread use of social media among companies to communicate with the public and in particular with investors. In April 2013, the regulatory marketing body in the United States (SEC, Securities and Exchange Commission), taking as its precedent the Regulation Fair Disclosure, accepted social media communications as “perfectly acceptable methods” to disclose company information. The disclosure must meet two conditions: first, companies must give advance notice to investors as to the social media the business news will be disclosed; and second, access cannot be restricted to a particular group. Therefore, the CEO of the company and senior management, provided they meet these requirements, may disclose company information in a regulated manner through Facebook, Twitter, Tumblr, and other electronic media. Although companies already communicated by these means, the practice was not regulated.

Video (live or recorded) is among the different social media communications. This article reviews the accounting literature that evaluates the use of online video by companies and its impact on investor confidence. It examines in particular the effect that the use of video can have on the restatement disclosure of financial statements. The “restatement of financial statements” is the issuance of corrected financial statements that replace previous ones. The restatement has a serious effect on investors, as decisions were made based on information that is not valid. When reissued financial statements reflect lower results than previous ones, investor confidence in the company deteriorates. Therefore, companies are interested in disclosing the restatement of financial statements in a way that minimizes the damage.

To mitigate the impact, companies can make the restatement of financial statements announcement via online video, rather than the traditional way, with a text in a press release. However, the use of video may not be effective or even damage the relationship with investors if used improperly.

Impact of corporate video online
In late 2010, Kellaway (2010) predicted that the basic unit of corporate communication would change from the written word to video. Companies understand that corporate messages transmitted by way of written messages are weak. Video is a much better way to communicate with employees, customers, investors, and in general with society. In just three years (between 2008 and 2010), video went from being practically non-existent to making up nearly half of the Internet traffic. According to Kellaway, the change in the way companies communicate from the written word to video will have three main effects: (1) it will change the kind of person who makes the announcements; now the new leader must be charismatic, likeable, with an attractive face, a good story teller and performer; 2) it will change the management style of companies; numbers and facts will be replaced by emotional appeals, even when the emotions are false; large and costly strategies will disappear as performance and results dominate, and 3) it will change the place that the company occupies in society. A positive consequence of this change is that with the use of video, companies will have greater clarity in the way of viewing their businesses and think more rigorously in what they are trying to say and do.

For Elliot et al. (2011), video is a channel of communication with a high degree of social presence that provides much sensory information to those who see it. In particular, video transmits the physical presence and personal characteristics of the communicator (leadership, strength, character, among others). This sensory experience captures the attention of observers and awakens emotions that influence the processing and discernment of the transmitted information.

It is said that communication via videos has an effect on investor confidence. However, there is no single definition of confidence, rather it depends on the area of study (psychology, economy, organizational sciences and others). However, in most definitions vulnerability is included as a key element of trust. For example, Bhattacharya et al. (1998) developed a formal model of trust in social relations and define it as “an expectation of positive (or negative) results that one can receive based on the expected action of another party in an interaction characterized by uncertainty.” For Flores and Solomon (1997), trust is influenced both by affection (feelings) and by knowledge (beliefs), although they recognize that it is not easy to separate the individual and interactive effect that these components have in the assessment of trust.

Positive expectations of others in these two dimensions (feelings and beliefs) are the basis for generating the initial trust. The confidence that comes later grows over time when the behavior of others confirms the positive expectations. It has been said that having positive expectations is like a perception or belief that the behavior or intentions of another shall be consistent with the expectations (Bhattacharya et al., 1998). When the behavior of the other is inconsistent with the positive expectations, trust is damaged and it is difficult to restore.

When public companies reissue financial information to correct material errors in previous financial statements, investor confidence in the company is put at risk. Traditionally, public companies have announced through texts (in the formats established by regulatory authorities, such as the SEC or the National Banking and Securities Commission) the nature of the reissue and its effect on financial statements. In addition, companies use more and more online video to try to reduce the damage that a restatement causes in the trust that investors had placed in the financial information, and therefore, in the management of the company (Elliot et al., 2011). This damage may have important consequences on the share price, in the value of market capitalization of the company and in the permanence of the CEO, among other things.

To determine whether the use of video for restatement disclosure can mitigate the damage in the investors’ confidence, Elliot et al. (2011) conducted a new study that compared the effects on the investment recommendations (and, therefore, on investor confidence) when the company discloses the restatement online via video instead of a printed text online. According to Elliot et al. (2011) a restatement is not consistent with the positive expectations that investors had of the company management, which damages their trust.

Another important factor is the disclosure of the cause of the restatement. That is, the message must report who is responsible for the mistakes that led to the restatement. Thus, Elliot et al. manipulated in their study the way to disclose the restatement (online video or text online) and the attribution of responsibility for the restatement. In the experiment, the CEO of a fictitious company accepts the responsibility for the restatement (he attributes the responsibility for the error to himself) or blames a third party (he attributes the responsibility for the error to an external party).

The results of the study show that both variables have an effect on the confidence assessments of the participants and in their investment recommendations. Elliot et al. conclude that when a restatement of the financial statements is announced in which the CEO accepts responsibility, the online video has a positive influence on investors. In these cases, the investors recommend investing in the company more than if they had been informed of the restatement with a text online. In other words, it is better to announce the restatement via an online video than with a text online. However, if the CEO denies his responsibility when announcing the restatement and attributes the error to external factors, investors recommend investing less in the company when the restatement is done via online video than with a text online. That is to say, it would be better to announce the restatement with a text online than via an online video.

These conclusions are outlined in the following figure:

Fuente: Elaboración propia

The use of videos to disclose corporate information is not limited to the restatement of financial statements. Companies can use online video to try to reduce the negative effects of other types of announcements. Such is the case of the Volkswagen Group, which recently caused the financial scandal known in social networks as “#VWGate.”

The Financial Scandal of Volkswagen
On September 21, 2015, the Volkswagen Group accepted having placed software in some of its diesel engines (11 million cars worldwide) to change the performance when subjected to emissions tests. The software falsely indicated a lower amount of emissions than those permitted by the authorities (in fact, these cars emitted 10 to 40 times more pollutants than what is tolerated in the United States). CEO Martin Winterkorn made this announcement via an online video. He apologized and accepted responsibility for the scandal: “Millions of people worldwide trusted our brand, our cars and our technology,” he said. “I am infinitely sorry that we have betrayed that trust.” (Reforma, 2015). As a result of this news, that same day the share price fell 17.10% in the United States (which meant a loss of market value of 9.263 billion dollars) and 34.2% from September 11 to 25 (Reforma, 2015).

The use of online video as a means of social communication has grown exponentially in recent years and is increasingly being used. Companies must adapt to rapid technological changes and take advantage of the use of online video to communicate with society and especially with investors. The accounting literature reviewed in this article suggests the use of online video instead of text online to increase investor confidence and minimize the effect of a negative announcement that could affect it. Due to the sensory nature of video, executives today need not only to have knowledge, but also a face, charisma and leadership, and above all a thorough understanding of the effects that online videos can have on investors.


Elliot Brooke W., F. Hodge and L. Sedor. 2012. Using Online Video to Announce a Restatement: Influences on Investment Decisions and the Mediating Role of Trust. The Accounting Review 87 (2): 513 – 531.

Flores, F, and C. Solomon. 1997. Rethinking trust. Business and Professional Ethics Journal 16 (1-3): 47-76

Kellaway,L. 2010. Words fail them. Economist (November 22), recuperado el OCtober 8, 2015, at http:/

Rajeev Bhattacharya, T. Devinney and M. Pillutla. 1998. A formal model of trust based on outcomes. Academic of Management Review 23 (3): 459 – 472

Reforma (2015), Jefe de VW en la cuerda floja, Reforma, recuperado el October 8, 2015 at: http:/

Reforma (2015), Lo que debe saber sobre el escándalo VW, Reforma, recuperado el October 8, 2015 at: http:/

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