Received: 26 February 2021 Accepted: 26 April 2022

DOI: 10.1111/poms.13743

ORIGINAL ARTICLE

A theory-driven machine learning system for financial

disinformation detection

Xiaohui Zhang1 Qianzhou Du2 Zhongju Zhang1

1
W. P. Carey School of Business, Arizona State
University, Tempe, Arizona, USA
2
Business School, Nanjing University, Nanjing,
Jiangsu, People’s Republic of China
Correspondence
Qianzhou Du, Business School, Nanjing
University, No. 16 Jinyin Street, Gulou District,
Nanjing 210093, Jiangsu Province, People’s
Republic of China.
Email: qianzhou@nju.edu.cn
Handling Editor: Vijay Mookerjee
Abstract
Maliciously false information (disinformation) can influence people’s beliefs and
behaviors with significant social and economic implications. In this study, we exam-
ine news articles on crowd-sourced digital platforms for financial markets. Assembling
a unique dataset of financial news articles that were investigated and prosecuted by the
Securities and Exchange Commission, along with the propagation data of such articles
on digital platforms and the financial performance data of the focal firm, we develop
a well-justified machine learning system to detect financial disinformation published
on social media platforms. Our system design is rooted in the truth-default theory,
which argues that communication context and motive, coherence, information corre-
spondence, propagation, and sender demeanor are major constructs to assess deceptive
communication. Extensive analyses are conducted to evaluate the performance and effi-
cacy of the proposed system. We further discuss this study’s theoretical implications
and its practical value.

KEYWORDS
fake news, financial disinformation, social media platform, theory-driven machine learning, truth-default
theory

1 INTRODUCTION
The Internet plays an essential role in disseminating infor-
mation in a free, open, and democratic society. However, the
quality of the information available on the Internet can vary
widely in terms of its accuracy, objectivity, completeness, and
reliability (Liu et al., 2020). Social media platforms, which
facilitate sharing of information, exacerbate this problem. In
recent years, we have witnessed a continuing onslaught of
false or misleading information on such platforms. These
types of false or misleading content can generate enough
critical mass (often in a matter of minutes) so as to influ-
ence people’s beliefs, attitudes, and behaviors by virtue of
its ubiquity with significant social and economic implications
(Grinberg et al., 2019). As such, there has been growing atten-
tion from both academia and industry on this broad topic,
which involves various terms and concepts such as fake news,
misinformation, disinformation, maliciously false news, or
other forms of biased content.
To help consolidate various concepts related to fake news,
Zhou and Zafarani (2020) provide a comprehensive survey of
Accepted by Vijay Mookerjee, after two revisions.
the topic and distinguish these concepts based on three char-
acteristics: (i) authenticity (false or not), (ii) intention (bad or
not), and (iii) whether the information is news or not. Consol-
idating earlier research (Kogan et al., 2019; Zhou & Zafarani,
2020), we use the term disinformation in this study to refer
to news that is intentionally and verifiably false news pub-
lished on social media platforms. This definition emphasizes
the malicious intent and ex ante false attributes of the infor-
mation. For instance, the first two messages in The Boy Who
Cried Wolf were maliciously false (making fun of others with
lies) at the beginning, even though the wolf really came at the
end.
In the financial context, researchers have demonstrated
that financial news posted on social media platforms can
have a significant influence on financial markets (Chen et al.,
2014). Unauthorized/illegal information manipulation is a
huge moral hazard issue that challenges financial risk oper-
ations (Xu et al., 2017). Repeated exposure to fake news can
result in an “illusory truth effect” (Pennycook et al., 2018),
which might lead to confirmation bias in investors’ finan-
cial beliefs. Yet research on financial disinformation detection
is scant. Two recent developments are Kogan et al. (2019)
and Clarke et al. (2021), which showed that the existence

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DETECTING FINANCIAL DISINFORMATION
of financial disinformation could distort stock trading vol-
umes and returns and hurt the social welfare of financial
social media platforms and the fairness of market compe-
tition. In both studies, the authors proposed a simple and
similar text analytics approach to detect financial disinforma-
tion before analyzing its causal effects. The importance of a
reliable financial disinformation detection method is evident
in these circumstances in order to ensure robust empirical
findings.
Previous detection methods (Zhou et al., 2019) are not
satisfactory in the financial domain. First, those methods
were mainly trained with data in the social or political
domain. Prior literature has shown that fake social/political
news relies on people’s hedonic mindset like curiosity to
attract readers (Vosoughi et al., 2018). However, financial
news is usually utilitarian oriented; the patterns found from
social/political fake news may be inadequate for identify-
ing financial disinformation. Additionally, previous methods
rely on manual labeling mechanisms (e.g., a fact-checker) to
verify the news content and provide ground-truth (Sharma
et al., 2019). This ground-truth labeling approach can be a
challenge because financial news routinely contains financial
domain knowledge or insider information, which is difficult
to verify even by professional financial editors, let alone
the general crowd (Clarke et al., 2021). Finally, the set of
quantifiable features that go into the detection methods in
previous studies are either ad hoc or lack a systematic the-
ory that takes a unified and comprehensive perspective of
fake news. Financial operations, on the other hand, emphasize
the accuracy, rigor, and explainability of findings (Xu et al.,
2017).
In this paper, we examine news/content on crowd-sourced
digital platforms for financial markets. Specifically, we seek
to develop an effective and well-justified machine learn-
ing application system to predict maliciously false financial
news (financial disinformation) published on social media
platforms. Such an Information technology (IT) artifact can
potentially provide a unified theoretical framework that con-
siders the root cause of financial disinformation for early
detection and intervention. It could also help expand and
establish a reliable ground-truth financial disinformation
dataset, which provides a foundation for future empirical
studies aiming to analyze the causal impacts of financial
disinformation.
To achieve the above goal, we develop a machine learn-
ing application system for financial disinformation detection
under the guidance of design research theories and paradigms
(Hevner et al., 2004; Walls et al., 1992). To obtain rigor and
explainability, we operationalize a comprehensive deception
theory, truth-default theory (TDT) (Levine, 2014), to guide
our design. Based on TDT and empirical financial results, we
proposed a comprehensive set of computable metrics of finan-
cial news’ context and motive, sender demeanor, third-party
reactions, content correspondence, and content coherence.
Our ground-truth comes from the Securities and Exchange
Commission’s (SEC) investigation of financial disinforma-
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tion on crowd-sourced digital platforms. The final dataset
consists of detailed information of financial news on Seek-
ing Alpha, the diffusion patterns of the news on other social
media platforms, including StockTwits and Twitter, as well as
the financial performance data of the focal firm(s) discussed
in the news. We test our designed system with a rigorous
evaluation of various classification algorithms and empirical
settings. Our extensive analysis and performance evaluation
illustrate that our system is effective in detecting financial
disinformation; it outperforms previous intuitive-based, cues-
theory-based models. We also compare our model against
cutting-edge deep learning models and evaluate its robust-
ness to the temporal change in financial news, the ratio of
financial disinformation in the sample, and various prediction
thresholds. Finally, we illustrate the explainability of our pre-
dictive model using a model-agnostic interpretation method,
the Shapley values (Molnar, 2020).
This study contributes to several aspects of operations
management (OM) and information system (IS) research. We
showcase a systematic approach to operationalize a social
science theory (TDT) in guiding the design of a situated IT
artifact for financial disinformation detection. Our proposed
system significantly outperforms existing models and offers
better explainability for predicting financial disinformation,
which has high problem maturity but low solution maturity.
The proposed IT artifact could also be valuable to analyze
human-induced operational risk in financial services (Xu
et al., 2017). From an empirical perspective, our evaluation
results emphasize the importance of situational information
such as context and motivation for financial operations.
The rest of this paper is organized as follows. In Sec-
tion 2, we review the relevant literature (including conceptual,
empirical studies, and computational methods) about online
deceptions and fake news. Section 3 describes a comprehen-
sive set of quantifiable measurements from financial news
to operationalize the TDT as well as the overall architec-
ture of our system. Section 4 discusses how to construct
our dataset and the experimental settings to evaluate our
system. In Section 5, we provide extensive evaluations
of the system performance, the robustness of our results,
and illustrations of the explainability of the results. Sec-
tion 6 summarizes and discusses this research’s theoretical
and practical implications, limitations, and future research
directions.
2 LITERATURE AND RELATED WORK
This study relates to several streams of research across mul-
tiple disciplines. These include behavioral and empirical
studies of online deceptions, fake reviews, and news, diffu-
sion, and influence of such content on social media platforms,
technical and computational methods of deception detection,
as well as recent econometrics studies of the impacts of fake
news in the financial field. In the following, we provide a
synthesized overview of relevant work.

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2.1 Online deception and fake news
A rich body of literature explores deceptions in various
online settings such as e-commerce, product reviews, and
social media. Based on the context of e-commerce, Xiao
and Benbasat (2011) proposed a comprehensive theoret-
ical framework describing the process of product-related
consumer deception. The authors argue that sellers’ manip-
ulations of products’ information content, presentation, and
generation would influence consumers’ decisions through
affective and cognitive mechanisms. Along a similar line
of research, Xiao and Benbasat (2015) argued that product
recommendation agents might be biased to deceive con-
sumers and found that adding proper warning messages
can alleviate the risks in an experimental setting. Closely
related to e-commerce, many studies in the literature have
focused on fake product reviews. Luca and Zervas (2016),
for instance, found that about 16% of restaurant reviews on
Yelp are suspicious, and restaurants that face weak reputation
or high competition are more likely to commit review fraud.
Hence, firms might actively manage online sentiment about
their products in a strategic way (Lee et al., 2018). Lappas
et al. (2016) demonstrated that even a small number of fake
reviews could significantly affect the visibility of hotels on
the market. Identity deception is a significant problem due to
physical distancing (Vishwanath, 2015). In the supply chain
context, Cezar et al. (2020) examined the economic impact
when firms face agents who have the incentive to fake their
attributes in order to receive favorable decisions from the
firm’s classifiers.
Studies on fake news have examined its generation and dif-
fusion patterns, influences, and ways to combat fake news
(Lazer et al., 2018). On the Twitter platform, it was found
that a small group of users accounted for the generation
and spread of the majority of fake news (Grinberg et al.,
2019). Additionally, fake news circulated on social media
platforms is usually generated from outside sources (Chiou
& Tucker, 2018). The diffusion patterns of fake and legit-
imate news are strikingly different. Vosoughi et al. (2018)
found that fake news usually diffuses faster, deeper, and
broader than legitimate news due to its originality. Shin et al.
(2018) demonstrated that fake news propagation is usually
recursive and periodic, that is, it is likely to reappear peri-
odically. Shao et al. (2018) discovered that social bots play
an essential role in online fake news diffusion. Fake news
can also have significant impacts on people’s beliefs and atti-
tudes. Kim and Dennis (2019) found that the presentation
format and the source of an article influence the extent to
which users believe the article, which in turn influences how
they engage with it. In a separate study, Kim et al. (2019)
investigated solutions to combat fake news by labeling the
credibility and reputation ratings of news sources. It is worth
noting that all of the above work focused on political or
social news, while there are potential differences between
fake financial news and political news (Vosoughi et al.,
2018).
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ZHANG ET AL.
2.2 Financial disinformation
Financial disinformation explicitly aims to prevent general
investors from grasping the complete information or “inside”
risks inherent in particular assets (Kane, 2004). The most
common format of financial disinformation is manipulated
financial reports (Beneish, 1999). This type of financial fraud
is generated by the misconduct of inside managers and out-
side auditing firms (Huang et al., 2017; Kane, 2004; Liang
et al., 2016). Such disinformation within the financial sys-
tem is closely under the monitoring and regulation of the
SEC, and thus the violators might face serious consequences
and punishments (Amiram et al., 2018). Beyond the direct
financial reports from firms, financial disinformation also
appears across news media. Previous research on fake finan-
cial news mainly dealt with rumors or misinformation that
appear on traditional mainstream media. The media’s incen-
tive to publish sensational news leads to low accuracy and
biased information, which further result in abnormal market
reactions (Ahern & Sosyura, 2015). Bali et al. (2017) inves-
tigated the relationship between a firm’s unusual news flow
on the firm’s stock return and found that unusual news flow
can lead to volatility shock. However, the cost of manipulat-
ing mainstream media could be high and require significant
resources.
The growth of different social media platforms creates
new channels for financial disinformation. Social media dis-
cussions are usually considered as third-party opinions (Lee
et al., 2018), and there is a lack of systematic regulations
on such discussions. Thus, social media enables firms to
shape investors’ opinions and manipulate the financial mar-
ket in a low cost way (Tardelli et al., 2021). Two recent
studies using financial disinformation data on social media
platforms are Kogan et al. (2019) and Clarke et al. (2021),
and the SEC investigation revealed that this financial dis-
information was made and spread by writers secretly paid
by subject firms. Kogan et al. (2019) found that financial
disinformation increases the trading volume and stock price
temporarily. Clarke et al. (2021) found that financial disin-
formation obtains significantly more attention from investors
than legitimate news. Both of the studies stopped short in
developing an effective method to detect/predict financial
disinformation.
2.3 Detection of deceptions and fake news
As discussed earlier, an effective and automatic detection
model is necessary for studies that seek to examine the causal
effects of financial disinformation using observational data.
In the following, we summarize representative work and
review relevant studies of detection methods for deceptions,
frauds, and fake news. Zhou and Zhang (2008) validated
that linguistic features are useful in detecting deception in
online communications. In the product management context,
Abrahams et al. (2015) examined the role of linguistic- and

DETECTING FINANCIAL DISINFORMATION
content-based cues in detecting potential product defects. In
finance and accounting domains, Abbasi et al. (2012) pro-
posed a metalearning framework and utilized firms’ financial
ratios for financial fraud detection. Dong et al. (2018) fur-
ther improved the algorithm by incorporating financial social
media data to assess corporate fraud.
Deception detection of various forms of communications
has also been a widely studied topic in computer science
literature. The phenomenon of fake news on social media
platforms in recent years has further fueled interest in this
topic. To facilitate understanding and presentation, we sum-
marize existing studies based on three distinct information
components of communication (Hovland et al., 1953) used in
the fake news detection methods in Supporting Information
Table A1.
As can be seen from Table A1, each component of commu-
nication (in this case, fake news) can be measured by a variety
of features. The source of news, especially source credibility,
has been found to help identify if a news article is fake or not.
Some of the specific metrics used include whether the source
account is a bot account (Sharma et al., 2019; Shu et al.,
2020a), the number of followers of the author (Castillo et al.,
2011), the number of followings of the author, author posting,
and reposting behavior (Ruchansky et al., 2017), and author
engagement matrix (Shu et al., 2019; Yang et al., 2019).
News content concerns the veracity of the news. Prior lit-
erature has extracted lexical features, syntax features, and
semantic features from news content. Metrics used for lex-
ical features include the number of words, average word
length, and the number of words per sentence. Syntax fea-
tures further consider the attributes of words, like person
pronouns, verbs tense, singular and plural pronouns, num-
ber of verbs, modal verbs, and passive verbs (Feng et al.,
2012). Semantic features distill abstract-level information,
including emotiveness, objective/subjective words, general-
izing words, and textual representation extracted by deep
learning methods.
The audience component contains rich secondary infor-
mation about users and spreaders of the news as well as
the interaction and feedback among these users. Specific
metrics include user/spreader profiles (Castillo et al., 2011;
Ruchansky et al., 2017), response stance measured by senti-
ment or opinions (Qian et al., 2018), temporal features (Kwon
et al., 2017), geographic location (Yang et al., 2012), types
of devices used (F. Yang et al., 2012), the depth of retweet
tree, the path of information diffusion, and user engagement
matrix (Yang et al., 2012; Yang et al., 2019).
3 KERNEL-THEORY-BASED DESIGN
A theory-driven machine learning system is necessary for
detecting financial disinformation. The majority of the fake
news detection algorithms presented in Section 2 rely on
intuitively extracted features (Sharma et al., 2019). For
the few that employed theories such as four-factor theory
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Production and Operations Management
TA B L E 1 Design framework for financial disinformation detection
machine learning system
Kernel theory Truth-default theory (TDT) emphasizes
contextualized communication content. By
default, people presume that communication is
honest (a truth-default state); a trigger or set of
trigger events can lead people to abandon the
truth-default state.
Metarequirements TDT proposes to use five types of information to
evaluate if an evidentiary threshold is crossed for
triggering the abandonment of the truth-default:
communication context and motive, sender
demeanor, information from third parties,
communication coherence, and correspondence
information.
Metadesign Construct a comprehensive set of computable
metrics that can represent each type of
information in TDT;
Design an analytic system that can extract features
and identify financial disinformation.
Testable hypothesis Evaluate the capabilities of our system. Specific
testable hypotheses are as follows:
H1: Each of the TDT-based feature sets can
significantly improve the performance of financial
disinformation detection.
H2: Algorithm using TDT-based features can
outperform the previous ad hoc and
cues-theory-based approach for detecting financial
disinformation.
and interpersonal deception theory, the extracted features
focused primarily on content and linguistic metrics. These
“cues-theories” are outdated and inconsistent with empiri-
cal findings (Levine & McCornack, 2014) and thus are not
appropriate kernel theories for financial disinformation detec-
tion. The lack of a proper unified theoretical foundation
could lead to a lack of rigorousness and comprehensiveness,
which limits the generalizability of applications (Hevner
et al., 2004). The magnitude of this issue could become more
evident in financial services, where financial disinformation
on digital platforms exhibits unique patterns and requires
extensive domain knowledge to justify the legitimateness of
information (Clarke et al., 2021; Xu et al., 2017).
We followed information system design theory (ISDT)
(Walls et al., 1992) to guide our system design process, which
includes kernel theories, metarequirements, metadesign, and
testable hypotheses. Table 1 illustrates this study’s applica-
tion of ISDT. We discuss the details of each component in the
following subsections.
3.1 Kernel theory: Truth-default theory
An important concept in TDT is that deceptive messages
involve intent, awareness, and/or purpose to mislead; that is,
a message is considered as honest/true absent such intent or
purpose (Levine, 2014). TDT is related and compatible with

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another popular theory: information manipulation theory 2
(IMT2), which was proposed by McCornack et al. (2014).
While IMT2 is a theory of deceptive discourse production,
which posits that deception involves covert manipulation of
information, TDT is focused more on credibility assessment
and deception detection accuracy (Levine, 2014). The central
idea in TDT is the truth-default state. By default, people tend
to tell the truth and believe others’ communication. This pre-
sumption of truth-default is adaptive and will be abandoned
once suspicion is triggered.
Levine (2014) indicated that some of the critical trig-
ger events to abandon truth-default include (a) a motive for
deception, (b) behaviors associated with dishonest demeanor,
(c) a lack of coherence in message content, (d) a lack of cor-
respondence between communication content and knowledge
of reality, or (e) information from a third party to warn poten-
tial deception. If a trigger (or set of triggers) is strong and
crosses a threshold, then suspicion is generated, and truth-
default is abandoned. Hence, to assess/detect honesty and
deceit, Levine (2014) proposed five types of information:
(1) communication context and motive, (2) sender demeanor,
(3) information from third parties, (4) communication coher-
ence, and (5) correspondence information. It should be noted
that TDT emphasizes contextualized communication content
(i.e., communication content as well as knowledge of context
or situations in which communication occurs) in deception
detection. Levine (2014) argues that contextualized com-
munication content tends to be more critical than sender
demeanor and observable nonverbal behaviors to improve
deception detection accuracy. Given this, we believe TDT
offers a better fit for detecting financial disinformation, where
the motivations and contexts often play a significant role
(Huang et al., 2017).
TDT has provided theoretical inspiration in various areas.
TDT has been used in the cybersecurity area to ana-
lyze individual differences in susceptibility to malevolent
interruptions (Williams et al., 2017). In the online commu-
nity domain, TDT helps to understand behavior differences
between individuals from different cultures (Marett et al.,
2017). More relevant to this research, TDT helps to under-
stand mass-oriented computer-mediated communication with
authenticity as a core unifying construct (Lee, 2020). In
the following, based on the TDT and a series of empirical
research, we propose a systematic and comprehensive set of
quantitative metrics corresponding to the five categories of
information in TDT.
3.2 Metarequirements and metadesign
Metarequirements are the information needed to achieve the
goal of the desired IT artifact; in our case, the information
needed for detecting financial disinformation. As discussed
earlier, TDT proposed five types of information for decep-
tion detection. However, they are abstract constructs rather
than computational variables and need to be operationalized
as specific measurements of financial news. To achieve that,
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ZHANG ET AL.
we first survey prior conceptual and empirical studies to dis-
till dimensions that can collectively represent the required
information for each construct. Then, we select dimensions
that can be measured and extracted from real-life data as
predictors of financial disinformation.
3.2.1 Communication context and motive
TDT, as a general theory, provides no detailed measure-
ment of communication context and motive but emphasizes
that deceptions mainly happen when the context thwarts
desired goals (Levine, 2014). Spreading financial disinfor-
mation on social media platforms is a low-cost approach to
mislead people’s perception of a firm’s performance. Anec-
dotal evidence indicates that most financial disinformation
was created either by firms’ managers or by market manip-
ulators who want to conduct the pump-and-dump scheme
on the subject firm (Huang et al., 2017; Siering, 2019).
The direct intention of such financial disinformation is to
increase the subject firm’s stock price. Empirical research
has found evidence that the stock price of subject firms
experiences a significant short-term lift after the publica-
tion of the fake news (Kogan et al., 2019). Research has
also shown that managers are more likely to conduct finan-
cial statement fraud when firms experience pressure (Huang
et al., 2017). Kogan et al. (2019) find that the market reac-
tion on financial disinformation is stronger for firms with
lower market capitalization (MC). Financial disinformation
is also more likely to be associated with small firms as they
are easier to manipulate (Siering, 2019; Tardelli et al., 2021).
Therefore, we can capture the contexts that motivate finan-
cial disinformation by monitoring firms’ sizes and financial
ratios.
Previous research on financial statement fraud identi-
fied a set of financial ratios that capture conditions where
firms meet pressures or development opportunities (Liang
et al., 2016). Specifically, guided by financial fraud detection
research (Abbasi et al., 2012; Dong et al., 2018), we use the
following financial ratios to capture the context and motive
of financial news: asset quality index (AQI), asset turnover
(AT), cash flow earning difference (CFED), days sales in
receivables (DSIR), depreciation index (DEPI), inventory
growth (IG), leverage (LEV), operating performance mar-
gin (OPM), receivables growth (RG), sales growth (SG),
and SGE expense (SGEE). The detailed calculation pro-
cess of these financial ratios, along with the rationale why
they may influence the communication context, is reported
in Supporting Information Table A2. Abbasi et al. (2012)
argue that different information granularities in quarterly and
annual financial information make them complementary to
each other in deception detection. Therefore, we include both
annual and quarterly financial ratio features in our analysis.
In terms of firm size, following previous research (Li et al.,
2021), we measure firm size with MC, the number of com-
mon shares of outstanding at yearend (CSHO), and the stock
price at yearend (PRCC).

DETECTING FINANCIAL DISINFORMATION
3.2.2 Sender demeanor
Sender demeanor refers to the believability of the information
source (Levine, 2014), a construct similar to source credi-
bility. Sussman and Siegal (2003) proposed that competence
and trustworthiness are two essential components of source
credibility. Liu et al. (2020) captured competence using past
experience of the information source and the author’s exper-
tise in online knowledge communities. Past experience can
be measured by her tenure in the financial news platform, for
example, Seeking Alpha. Expertise reflects an individual’s
ability to continuously output useful knowledge (Cheung
et al., 2013). On Seeking Alpha, users have two output
channels. Articles are formal financial analyses related to cer-
tain assets, and blogs are informal opinions without topic
restrictions. Articles require professional financial analysis
and will be checked by Seeking Alpha editors (Clarke et al.,
2021). We use the number of articles and blogs on the plat-
form to measure the author’s expertise. According to social
capital studies, trustworthiness is usually created through
people’s interactions in a social network. If an individual
conducts a large number of high-quality interactions with oth-
ers, the trustworthiness of the individual will increase (Tsai
& Ghoshal, 1998). Thus, we use an individual’s comment
count and average comment length to measure the trustwor-
thiness. Another aspect of the sender demeanor is information
distribution behaviors. Deceivers could leverage information
diffusion to deceive people, especially in computer-mediated
communication like social media (Vishwanath, 2015). We use
the number of subcommunities to which an author distributed
her financial news articles and the number of subcommu-
nities that an author participated in to measure the author’s
information distribution behavior.
3.2.3 Information from third parties
Information from third parties represents diagnostic informa-
tion provided by channels or individuals outside of the current
communication environment (Levine, 2014). The informa-
tion diffused on a single platform can form an echo chamber
and result in confirmation bias (Pennycook et al., 2018).
Therefore, TDT emphasizes the question effects from third
parties, especially information from the outside contexts, to
help detect deceptions. This idea is also reflected in dynamic
communication theory (Shin et al., 2018), which suggests that
disinformation would recursively diffuse to and be shaped by
outside contexts. found that cross-platform diffusion could
promote the consumption of information. Chiou and Tucker
(2018) showed that external links are the primary source of
fake news on social media. Information outside of the local
communication environment is harder to control, manipu-
late, and hide than that in the original environment (Zhou
& Zafarani, 2020). Therefore, the propagation of a finan-
cial news article on other platforms can capture relevant
information from third parties.
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Production and Operations Management
We use propagation on StockTwits, a social media platform
for investors and traders, to represent information from third
parties with domain knowledge, and the propagation on Twit-
ter to represent information from general third parties (Deng
et al., 2018). Shu et al. (2019) suggested that disinformation is
more likely to be shared among individuals who lack related
knowledge. We capture this difference using the propagation
patterns of the news articles on both platforms. Besides cap-
turing whether a financial news article was diffused to the
professional or general platform, we also measure informa-
tion from third parties by the diffusion/propagation patterns
and the status of information sharers (Vosoughi et al., 2018).
We quantify propagation patterns in speed (the time lag
between the publication of an article and its cross-platform
diffusion in seconds), scope (the number of users and posts
related to the article on the platform), and depth (the number
of reactions to posts related to the article, like replies, likes,
and retweets). For information sharers’ status, we consider
her experience (tenure in Twitter or StockTwits in months)
and interactions (the number of followers, following, posts,
and received likes).
3.2.4 Communication coherence
Communication coherence refers to the consistency of the
contents’ elements and logic (Levine, 2014). There are
two subcategories of coherence: explanatory coherence and
structural coherence (McNamara et al., 1996). Explanatory
coherence is the content that supplies the information needed
to conduct effective communication. Givenness (the amount
of information), type–token ratio (the repetition of differ-
ent types of words), and connectedness (the presence of
connective words, e.g., “and,” “but”) are proper measure-
ments of explanatory coherence (Crossley et al., 2016) and
can be extracted using Linguistic Inquiry and Word Count
(LIWC). Structural coherence is the content’s internal logic
structure, that is, the relationship between sentences and
paragraphs. Since structural coherence focuses on the pat-
terns of discourse relation transitions (Lin et al., 2011), it
can be measured by lexical overlap and semantic similarity
between sentences and paragraphs (Crossley et al., 2019).
We quantify the structural coherence of financial news by
calculating the overlaps of synonyms, the cosine similarity
of latent semantic analysis, the latent Dirichlet allocation
divergence score, and the word2vec similarity score. The
coherence measurements are generated by the Tool for the
Automatic Analysis of Cohesion 2.0 (TAACO). Crossley
et al. (2019) validated that the generated measurements are
highly consistent with manual evaluations of text structure
cohesion.
3.2.5 Correspondence information
Correspondence information involves a comparison between
what is said and known facts (Levine, 2014). Hence one
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3166 ZHANG ET AL.
Production and Operations Management

needs external evidence or message receiver reactions to mea-

sure communication correspondence (Levine, 2014). Kogan
et al. (2019) suggest that in most financial disinformation,
there exist exaggerations of positive information that can-
not be found in firms’ financial statements. To measure
the consistency of article sentiment and financial facts, we
employed the method in Gordon et al. (2013) and quantified
correspondence information by comparing the firm’s stan-
dardized financial ratios against the standardized sentiments
extracted from the news article. Since it is the compari-
son of two sets of standardized variables, the mean value
would be zero. Furthermore, we compare the consistency
between news articles and Seeking Alpha users’ percep-
tions/beliefs about certain facts in the article. We extract
metrics from the news comments to measure receivers’ reac-
tions to the financial news. These include the number of
comments, the average sentiments of the comments, and
the difference between the news article’s sentiment and its
comments’ sentiment. Table 2 summarizes the quantitative
metrics for the five information categories suggested by
TDT.

3.3 Testable hypotheses

According to ISDT, testable hypotheses mainly concern the

feasibility and effectiveness of the IT artifact (Walls et al.,
1992). The feasibility of the proposed financial disinforma-
tion detection system is demonstrated by the instantiation
described in this research. To test the effectiveness, we evalu-
ate our method’s performance improvement by incrementally
adding each of the five sets of features highlighted in TDT to
the model. We further benchmark our method against those
that use ad hoc and cue-theory-based features, as well as a
few deep learning models that use only textual information.
Therefore, we propose the following hypotheses to evaluate
the effectiveness of our system.
H1 Each of the TDT-based feature sets can significantly
improve the performance of financial disinformation
detection.
H2 Algorithms using TDT-based features can outperform
previous ad hoc and cue-theory-based approaches for
detecting financial disinformation.
3.4 Design instantiation: A financial
disinformation detection system
In this section, we discuss the overall system architecture
of our design product. Our system utilizes both structured
data (cross-platform propagation, financial ratios, and author
information) and unstructured data (article content, com-
ments, etc.). Figure 1 presents details of the overall system,
which includes data collection, feature extraction, classifier
construction, and results explanation.
F I G U R E 1 System architecture of the financial disinformation
detection system
Data collection gathers necessary information from mul-
tiple sources and matches information at the news level
to construct a dataset. Article content, author information,
and comments are retrieved from the financial social media
platform Seeking Alpha. The Compustat database provides
the required dynamic and situational financial record about
the subject firms in the news articles. We also monitor
and record financial news articles’ cross-platform propaga-
tion situations on StockTwits and Twitter. SEC files that
charge a series of financial disinformation provide us reliable
ground truth labels. Then, we utilize text mining methods
(e.g., LIWC, Latent Dirichlet Allocation (LDA), word2vec)
to process unstructured texts to generate feature sets like
communication coherence and communication correspon-
dence. We choose five classical supervised learning models:
naïve Bayes (NB), logistic regression (LR), support vector
machine (SVM), random forest (RF), and gradient boost-
ing (GB). These methods are representative classifiers that
have been adopted in various machine learning tasks. Last
but not least, we provide an example to interpret our model
results through the estimation of Shapley values for all
features.
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DETECTING FINANCIAL DISINFORMATION 3167
Production and Operations Management
TA B L E 2 Quantitative metrics for TDT information

Information type Dimensions Metrics

T1: Communication Financial performance (annual; quarterly) (Abbasi et al., Asset quality index (AQI; AQI_q)
context and motive 2012; Dong et al., 2018; Huang et al., 2017; Liang et al., Asset turnover (AT; AT_q)
2016)
Cash flow earnings difference (CFED; CFED_q)
Days sales in receivables (DSIR; DSIR_q)
Depreciation index (DEPI; DEPI_q)
Gross margin index (GMI; GMI_q)
Inventory growth (IG; IG_q)
Leverage (LEV; LEV_q)
Operating performance margin (OPM; OPM_q)
Receivables growth (RG; RG_q)
Sales growth (SG; SG_q)
SGE expense (SGEE; SGEE_q)
Firm Size (Li et al., 2021; Siering, 2019) Market capitalization (MC)
Number of common shares of outstanding at yearend (CSHO)
Stock price at yearend (PRCC)
T2: Sender demeanor Knowledge (Liu et al., 2020) Author experience (tenure on Seeking Alpha, days)
Expertise (Cheung et al., 2013; Liu et al., 2020) Author article count
Author blog count
Interaction (Liu et al., 2020; Tsai & Ghoshal, 1998) Author interaction count (comment count)
Author interaction length (comment length)
Distribution (Vishwanath, 2015) Author activity scope (discussed stock’s count)
Number of subcommunities an article distributed
T3: Information from Diffusion on StockTwits/Twitter platform (Chiou & Tucker, Whether shared on StockTwits/Twitter
third parties 2018; Vosoughi et al., 2018)
The time lag between the publication of an article and its presence
on StockTwits/Twitter (seconds)
Number of users shared the article on StockTwits/Twitter
Number of posts about the article on StockTwits/Twitter
Average number of sharers’ followers on StockTwits/Twitter
Average number of sharers’ followings on StockTwits/Twitter
Average number of sharers’ posts on StockTwits/Twitter
Average number of sharers’ likes on StockTwits/Twitter
Average number of sharers’ tenure on StockTwits/Twitter (months)
Average number of replies about the article on Twitter
Average number of retweets about the article on Twitter
Average number of favorites about the article on Twitter
T4: Communication Explanatory coherence (Crossley et al., 2016) 93 LIWC features
coherence
Structural coherence (Crossley et al., 2019; Lin et al., 2011) Average sentence to sentence overlaps of noun synonyms
Average sentence to sentence overlaps of verb synonyms
Average latent semantic analysis cosine similarity between all
sentences
Average latent semantic analysis cosine similarity between adjacent
sentences
Average latent Dirichlet allocation divergence score between all
sentences
Average latent Dirichlet allocation divergence score between
adjacent sentences
Average word2vec similarity score between all sentences
Average word2vec similarity score between adjacent sentences
(Continues)

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TA B L E 2 (Continued)
Information type Dimensions
T5: Correspondence External evidence (Kogan et al., 2019)
information
Message receiver reaction (Vosoughi et al., 2018)
4 DATA AND MODEL EVALUATION
SETTINGS
4.1 Data collection and sampling strategy
To implement and evaluate our proposed system, we col-
lected and aggregated data from several sources, including
Seeking Alpha, SEC, StockTwits, Twitter, and Compustat.
We choose Seeking Alpha as the source of financial news
articles. Seeking Alpha is the world’s largest crowdsourc-
ing investing community, where contributors publish a large
number of analytical articles. News articles on Seeking Alpha
have a significant influence on the stock market (Chen et al.,
2014), but the legitimateness of many articles on the plat-
form is a concern. The SEC investigated and filed fraud
charges in April 2017 against individuals and companies
for spreading financial disinformation, the majority of which
were published on Seeking Alpha.
All the investigated financial disinformation on the Seek-
ing Alpha platform has since been removed. Courtesy of
Clarke et al. (2021), we obtained the data of 383 financial
disinformation news articles that were used in their study. All
these disinformation articles were published between August
2011 and March 2014, so we narrowed down to the arti-
cles published in the same period on Seeking Alpha. Since
most financial disinformation identified by the SEC focuses
on firms in the pharmaceutical and healthcare industry, we
select all articles primarily discussing firms with the same
SIC (standard industrial code) during the same time period.
The filter leads to a sample of 6866 news articles. We assume
that (following Clarke et al., 2021), the news articles that are
NOT on the SEC’s charge list are legitimate news, a potential
source of noisy labeling. This potential noisy label problem
can be alleviated by repeated undersampling, as discussed in
the next section. Since we want to incorporate cross-platform
diffusion patterns for financial disinformation detection, we
dropped two articles that could not be determined on other
platforms. Thus, in our sample, we have 381 financial
disinformation and 6866 legitimate financial news articles.
For each news article in the sample, we collect the title,
URL, date of publication, author profile, main contents,
comment record, and the list of stock tickers included in
the article. Some structured data (e.g., author profile) can
directly serve as metrics in Table 2. For unstructured data,
we utilize various text mining methods (LIWC, LDA, LSA,
word2vec, etc.) to extract metrics of content coherence and
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ZHANG ET AL.
Metrics
Differences between standardized financial ratios and the article
sentiment
Number of comments an article received
Differences between the sentiment of comments and the sentiment
of articles
Average sentiment of comments
correspondence. We use LIWC software to generate explana-
tory coherence features and use TAACO software to calculate
the structural coherence features (Crossley et al., 2019). Then
according to the article’s primary stock sticker and the date of
publication, we obtain the prior quarters’ and years’ financial
records of the article’s subject firm from Compustat. If there
are missing values, we first look for the relevant data from
the subject firm’s financial statement. We further compute
various operating performance ratios of the firm proposed
in Table 2. For rare cases of zero dominators, we fill in the
neutral value suggested by Dong et al. (2018); for instance,
since most ratios (e.g., AQI) capture the year-to-year changes
of accounting items, the neutral value would be 1. To cap-
ture the news articles’ cross-platform propagation, we match
news articles in the sample to longitudinal records of Twitter
and StockTwits. The matching is based on the title, URL, and
publication date of articles; thus, the extracted metrics would
be strict and conservative.
Overall, the constructed dataset contains 157 features of
7247 financial news articles (381 financial disinformation
articles and 6866 legitimate articles). The summary statis-
tics of the main TDT features are reported in Supporting
Information Table A3.
4.2 Evaluation setup
As our goal is to identify financial disinformation, we label
financial disinformation in our dataset as positive instances
and legitimate news as negative instances. Our dataset is
highly imbalanced; there are only about 5.26% of finan-
cial disinformation articles (positive instances). The high
imbalance degree between classes would hinder classifica-
tion algorithms’ performance (Japkowicz & Stephen, 2002).
Resampling is a typical strategy to alleviate the impacts of
data imbalance, and we utilized the random undersampling
method. We first randomly split our dataset into a training
dataset and a testing dataset at a ratio of 4:1. Then we under-
sample the legitimate news in the training set to construct a
balanced training set while we keep the data in the testing set
the same as the original naturally distributed condition. To
take advantage of all the legitimate news data, we bootstrap
and repeat previous data splitting and resampling procedures
100 times with different random seeds. Thus, we obtain 100
pairs of training sets and testing sets as our experimental
datasets.

DETECTING FINANCIAL DISINFORMATION
The constructed datasets allow us to evaluate the perfor-
mance and robustness of our design systematically. Because
of the high imbalance degree between positive and nega-
tive instances, we adopted precision, recall, and F1 score
as performance measures. Another popular metric, classifier
accuracy, was not appropriate in our context since it can be
easily biased by imbalanced data. The definitions of the above
performance measures are given below. Besides the above
three metrics, we also calculate the area under the precision-
recall curve (AUC). Precision-recall AUC is appropriate for
evaluating imbalanced dataset, and the default AUC value for
a random classifier would be the positive ratio in the sample
(0.0526 in this sample).
Number of true positive instances
Recall = , (1)
Number of actual positive instances
Number of true positive instances
Precision = , (2)
Number of predicted positive instances
2 ∗ Recall ∗ Precision
F1 score = . (3)
Recall + Precision
4.3 Design search
Hevner et al. (2004) emphasize that the process of design-
ing an IT artifact should be rigorous. It involves an iterative
and incremental search of the design space and a sequence
of optimizations to meet the final design objectives. In
empirical studies that examine the impacts of fake finan-
cial news, Clarke et al. (2021) and Kogan et al. (2019)
proposed simple classification models that use only content
features (LIWC features) to classify financial disinformation.
We adopted that model using only LIWC features as the base-
line model. As discussed in Section 3, LIWC features capture
just the explanatory coherence of the news. As such, the base-
line model would be inadequate for financial disinformation
detection. We sequentially add each TDT information cate-
gory to the model to evaluate its incremental improvement to
the baseline model. After that, we use all feature sets to eval-
uate the overall performance of our proposed system. Besides
the incremental performance, we also look at the ablation
performance by removing each feature set from the all fea-
tures model. By so, we can evaluate the unique contribution
of each feature set to the final performance. Overfitting might
be a concern when the model includes all features. Hence, we
conduct feature selection through recursive feature elimina-
tion with cross-validation (RFECV) and see whether a subset
of features can produce a decent performance. In this process,
we can gain further understanding of financial disinformation
and provide useful feedback to underlining theories.
Additionally, we compare our method against deep learn-
ing methods (e.g., long short-term memory [LSTM], bidi-
rectional encoder representations from transformers [BERT])
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3169
Production and Operations Management
that can automatically extract features from contents to
demonstrate the necessity of feature design. We further con-
duct a series of sensitivity analyses to check the robustness
of the final design product. Finally, we present the Shapley
values for the five categories of the TDT features to illustrate
the interpretability of our model.
5 DESIGN EVALUATION RESULTS
5.1 Main evaluation results
We train and test all the models/classifiers on the 100 pairs
of experimental datasets described in Section 4.2. For each
model, we obtain 100 observations of the performance met-
rics (precision, recall, and F1 score) on the test datasets.
We conduct paired t-tests on F1 scores between TDT-based
models and the baseline model to estimate the statistical sig-
nificance of the performance improvement. The paired t-test
is one of the typical and robust methods to compare per-
formance between machine learning models (Abbasi et al.,
2012). The performances of these models are shown in
Table 3. It can be seen that all TDT based feature categories
are essential for detecting financial disinformation.
From panel A of Table 3, we can see that each of the five
categories of information alone can significantly improve the
baseline model performance in at least one classifier. The full
TDT-based model outperforms models with any single set of
features. From panel B of Table 3, we can see that remov-
ing any feature category from the full model would lead to a
significant performance drop in at least one classifier. In par-
ticular, the feature set of communication context and motive,
which has not been studied in previous research, is shown
to be the most effective among all different feature sets. We
note that for different classifiers, ensemble learning methods
(RF and GB) perform better than other methods and bene-
fit the most from TDT-based features. The performances of
ensemble learning methods also have smaller standard errors,
which indicate the higher robustness of these models. Over-
all, our analyses provide substantial evidence that TDT-based
models can outperform models that only use LIWC features.
As shown in Table 1, previous methods for detecting social
and political news use source, content, and audience-related
features. These features are subsets of our proposed TDT
features. For comparison purposes, in Table A4, we sum-
marize the feature categories used in previous representative
models and their performance in our context. Under different
comparisons, TDT-based models exhibit better performance.
Therefore, we can confirm our two hypotheses.
Besides the improved performance, we have some interest-
ing observations from our analyses. On average, situational
information categories like sender demeanor, communication
context, and motives are more effective than static content-
related information categories like communication coherence
and correspondence. This could indicate the dynamic nature
of financial disinformation.
 3170

TA B L E 3 Main results

NB LR SVM RF GB
Prec. Rec. AUC F1 Prec. Rec. AUC F1 Prec. Rec. AUC F1 Prec. Rec. AUC F1 Prec. Rec. AUC F1

Panel A: Incremental performance

Baseline (LIWC) 0.222 0.931 0.210 0.358 0.439 0.951 0.420 0.600 0.437 0.954 0.419 0.598 0.606 0.954 0.581 0.741 0.608 0.968 0.590 0.746
LIWC+ThirdParties 0.237 0.916 0.221 0.375*** 0.436 0.949 0.417 0.597 0.432 0.952 0.414 0.593 0.609 0.954 0.583 0.743 0.613 0.968 0.595 0.750
Production and Operations Management

LIWC+ContextMotives 0.368 0.962 0.356 0.532*** 0.495 0.961 0.478 0.653*** 0.484 0.962 0.467 0.643*** 0.868 0.992 0.861 0.925*** 0.864 0.997 0.861 0.925***
LIWC+SenderDemeanor 0.223 0.948 0.215 0.361 0.469 0.955 0.451 0.629*** 0.458 0.955 0.440 0.618*** 0.700 0.964 0.677 0.810*** 0.710 0.978 0.695 0.822***
LIWC+Coherence 0.221 0.947 0.212 0.357 0.473 0.957 0.455 0.633*** 0.475 0.957 0.457 0.634*** 0.614 0.950 0.586 0.745 0.623 0.970 0.606 0.758*
LIWC+Correspondence 0.226 0.924 0.213 0.363 0.466 0.959 0.449 0.627*** 0.461 0.960 0.445 0.622** 0.678 0.963 0.656 0.796*** 0.660 0.977 0.646 0.787***
All Features 0.379 0.961 0.366 0.543*** 0.545 0.962 0.527 0.695*** 0.507 0.959 0.488 0.662*** 0.900 0.994 0.895 0.945*** 0.883 0.998 0.881 0.936***
Panel B: Ablation performance
All-ThirdParties 0.346 0.974 0.338 0.509*** 0.527 0.965 0.511 0.681 0.510 0.964 0.494 0.666 0.895 0.988 0.885 0.939 0.869 0.997 0.867 0.928
All-ContextMotives 0.238 0.933 0.226 0.378*** 0.518 0.960 0.500 0.672** 0.494 0.958 0.476 0.651** 0.681 0.950 0.649 0.792*** 0.712 0.976 0.697 0.823***
All-SenderDemeanor 0.346 0.966 0.336 0.509*** 0.493 0.958 0.475 0.650*** 0.473 0.954 0.454 0.631*** 0.887 0.987 0.876 0.934* 0.851 0.997 0.849 0.918***
All-Coherence 0.348 0.959 0.335 0.510*** 0.485 0.959 0.467 0.643*** 0.465 0.957 0.447 0.625*** 0.881 0.989 0.872 0.932* 0.862 0.996 0.859 0.924**
All-Correspondence 0.377 0.969 0.367 0.542 0.524 0.961 0.506 0.677** 0.501 0.959 0.482 0.656* 0.903 0.987 0.891 0.942 0.866 0.997 0.864 0.927*
Note: Panel A compared with the baseline (LIWC features) model. Panel B compared with the model with all TDT features. Significant results are highlighted in bold.
Abbreviations: AUC, area under the precision-recall curve; GB, gradient boosting; LIWC, linguistic inquiry and word count; LR, logistic regression; NB, Naïve Bayes; Prec., precision; Rec, recall; RF, random forest; SVM, support vector
machine.
*p-value < 0.05; **p-value < 0.01; ***p-value < 0.001.
ZHANG ET AL.

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 19375956, 2022, 8, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/poms.13743 by The Library Goldsmiths University of London, Wiley Online Library on [19/02/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
DETECTING FINANCIAL DISINFORMATION 3171
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5.2 Feature selection and an optimal subset

0.936

Abbreviations: AUC, area under the precision-recall curve; GB, gradient boosting; LIWC, linguistic inquiry and word count; LR, logistic regression; NB, Naïve Bayes; Prec., Precision; Rec., recall; RF, random forest; SVM, support vector
0.936
F1
of features

0.881
0.878
AUC
Feature selection is an integral component of a machine
learning algorithm design. While kernel theory provides

0.998
0.998
Rec.
directions for useful features, feature selection aims to deter-
mine an “optimal” set of features. We adopt the recursive
feature elimination with cross-validation (RFECV) method

0.883
0.880
Prec.
GB

13
for feature selection. RFECV would recursively drop features
according to the order of feature importance such as infor-

0.945
0.921
mation gain and then would measure the model performance

F1
through cross-validation. This recursive feature filtering pro-

0.895
0.853
cess would continue until it finds the “optimal subset of

AUC
features” or reaches the defined minimum number of fea-
tures. It is noted that different classifiers might select different

0.994
0.988
Rec.
combinations of features.
Table 4 reports the performances and the number of

0.900
0.863
Prec.
selected features for different classifiers. Overall, feature

RF

14
selection significantly improved the performance of most
classifiers, except ensemble learning methods like RF and

0.784***
GB. It should be pointed out that ensemble learning meth-

0.662
F1
ods already have embedded feature selection mechanisms,
thus the benefit of RFECV is minimal for these models. We

0.488
0.643
AUC
list the top 20 features in terms of their importance as well
as their importance scores (information gain, permutation
importance) in Supporting Information Table A5. Consis-

0.959
0.980
Rec.
tent with the observation in the previous section, features
belonging to communication context and sender demeanor

0.507
0.655
SVM
Prec.
categories rank higher on feature importance. We note that

61
some features (e.g., information from third parties and com-

0.775***
ment reactions) may not be immediately available at the 0.695
publication time of the financial disinformation. These lagged
F1

features, however, are usually not selected by the best classi-

fiers. Hence, the proposed method can still detect financial
0.527
0.632
AUC

disinformation in a timely manner.

0.962
0.989
Rec.

5.3 TDT-based models versus deep

learning models
0.545
0.639
Prec.
LR

46

Deep learning models can automatically extract features from

0.573***
Model performance with feature selection

raw data for different tasks. This raises the question of the
0.543

necessity of the theory-driven design. We compare our pro-

F1

posed model against several advanced deep learning models.

*p-value < 0.05; **p-value < 0.01; ***p-value < 0.001.
0.366
0.394

The first one is a standard deep neural network model; the

AUC

model structure and the detailed incremental/ablation perfor-

Note: Significant results are highlighted in bold.

mance of the model are reported in Supporting Information

0.961
0.956
Rec.

Table A6. The second model is the long short-term mem-

ory recurrent neural network (LSTM-RNN) (Hochreiter &
0.379
0.410
Prec.

Schmidhuber, 1997). The developed LSTM model contains

103
NB

an embedding layer with 200 dimensions mapping the con-

tents of financial news to an embedding, an LSTM layer with
Number of Features

64 neurons between two dense layers to process raw text and

extract features, and ended with a dense output layer to gener-
TA B L E 4

Best Subset

ate the prediction of the legitimateness of financial news. We

All (170)

machine.

also implement another deep learning model, BERT (Devlin


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TA B L E 5 Comparison of TDT-based models with deep learning
models
Model Precision Recall AUC
Baseline 1 (RF-LIWC features) 0.606 0.954 0.581
Baseline 2 LSTM (plain text) 0.724 0.806 0.814
Baseline 3 BERT (plain text) 0.741 0.839 0.821
LSTM (plain text) + TDT features 0.896 0.975 0.903
BERT (plain text) + TDT features 0.918 0.986 0.912
Our model (RF-all feature) 0.900 0.994 0.895
Abbreviations: AUC, area under the precision-recall curve; BERT, bidirectional encoder
representations from transformers; LIWC, linguistic inquiry and word count; LSTM,
long short-term memory; RF, random forest; TDT, truth-default theory.
et al., 2018), a state-of-the-art Natural Language Process-
ing (NLP) technique developed by the Google AI Language
team. We modify the BERT model to generate a binary pre-
diction of the legitimateness of each financial news article. In
addition to using just the raw contents of financial news, we
also include the TDT features in the deep learning models.
TDT features are merged with the textual features generated
by LSTM and BERT, and then all features are applied to train
an RF model, which performs best as shown in Section 5.1.
Table 5 presents the performance of the deep learn-
ing models, deep learning models with TDT features, and
our proposed model (using random forest). These deep
learning models were trained with 500 epochs, and the best-
performing weights were saved in the final model. We find
that both LSTM (Baseline 2) and BERT (Baseline 3) yield
better results (F1 score) than Baseline 1 (with only LIWC
features). The improvement of the deep learning models indi-
cates that they might capture more predictive information
from the news content than LIWC. Meanwhile, the deep
learning models with only plain text are still inferior to our
TDT-based model, and it is worth noting that the deep learn-
ing models that include all the TDT features also perform
similarly to the TDT-based model. These results indicate
that the proposed TDT features can provide a significant
contribution to financial disinformation prediction. Specifi-
cally, our model’s improved performance further reinforces
the importance of situational and contextualized information
in financial disinformation detection.
5.4 Sensitivity analysis concerning the data
imbalance ratio and prediction threshold
The performance of machine learning models may vary when
the class distribution in the dataset is imbalanced (Japkow-
icz & Stephen, 2002). Earlier studies (e.g., Clarke et al.,
2021) on financial disinformation used balanced datasets,
which might bias the actual model performance. To allevi-
ate this concern, we conduct a series of experiments using
test datasets with varying class distribution ratios. The ratio
of fake and legitimate news in the manipulated test sets
ranged from 1:1, 1:2, 1:10, 1:20 (reality situation), 1:50, to
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ZHANG ET AL.
1:100. Figure 2 displays our model results using test datasets
with different imbalance ratios. For clarity, we report the
F1 results of the RF classifier; trend patterns are similar for other
classifiers.
0.741
The results suggest that both the baseline model and the
0.762
TDT model work well on balanced data. However, when the
0.787 ratio of financial disinformation to legitimate news decreases,
0.934 we observe a substantial performance drop for the baseline
0.951 model due to the significant decrease in precision. On the
0.945 other hand, the TDT model performs reasonably well even
under the extreme distribution scenario.
The prediction threshold value also impacts the perfor-
mance of classifiers. Trained classifiers predict the proba-
bility value of an article being fake; a value above (below)
a certain threshold indicates fake financial news (nonfake).
Depending on the specific situation, different threshold val-
ues may be used. For example, in Kogan et al. (2019), the
authors used a cutoff value of 0.2 to classify articles as
being fake and classify articles with a probability less than
0.01 as being nonfake. In other words, Kogan et al. (2019)
emphasized precision over recall. To understand how differ-
ent threshold values, influence our model performance, we
conduct experiments using cutoff values ranging from 0.4 to
0.9. Figure 3 displays the model sensitivity with respect to the
cutoff value. For clarity, we only report the results of the RF
classifier and trend patterns are similar to other classifiers. We
can observe that compared to the baseline model the TDT-
based model not only performs better but also face fewer
variations (especially in recall) across different threshold
values.
5.5 Further robustness checks
5.5.1 Robustness to time period
Horne et al. (2019) suggest that some attributes of fake news
are often dynamic and might change over time. For example,
the authors of fake news can easily manipulate its content
or adapt their writing styles gradually, while other objective
information such as the financial performance of the sub-
ject firm is more difficult to manipulate. Hence the predictive
performance of a machine learning model could decrease
as the model is tested on future data in a rapidly evolving
environment. Here we want to check how our financial dis-
information detection model, which is trained on data from a
given period, performs on the test data from another period.
In order to do that, we split our dataset according to the pub-
lication date of news articles. We used financial news articles
published during 2011 and 2012 to train the classifiers and
selected the best models based on the performance in a test
dataset within the same period. We then applied those models
to predict the probability of being fake for the financial news
articles published in 2013. The F1 scores of this experiment
are shown in Figure 4. We can see that models with TDT
features perform better than the baseline LIWC models in
both earlier and later periods.
 19375956, 2022, 8, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/poms.13743 by The Library Goldsmiths University of London, Wiley Online Library on [19/02/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
DETECTING FINANCIAL DISINFORMATION 3173
Production and Operations Management

FIGURE 2 Performance sensitivity to the data imbalance ratio [Color figure can be viewed at wileyonlinelibrary.com]

FIGURE 3 Performance sensitivity to prediction threshold [Color figure can be viewed at wileyonlinelibrary.com]

FIGURE 4 Model performance over time [Color figure can be viewed at wileyonlinelibrary.com]

5.5.2 Robustness to ground truth labeling
Previous research on financial disinformation utilized differ-
ent criteria when determining the ground truth for legitimate
news. In this study, we treated published financial news about
the firms that have the same SIC code as those in the fake
class yet were not investigated by the SEC to be legitimate
news. The alternative approach is to treat all the other arti-
cles (except those that were investigated by the SEC) posted
by the same authors as ground-truth (legitimate news). This
alternative approach will create a data sample that has no
within-author variation for fake and legitimate financial news;
hence we cannot use author-related features like authors’
tenure experience on Seeking Alpha in our machine learning
system. Nevertheless, it provides us with another opportunity
to further evaluate the robustness of our system to different

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Production and Operations Management
ground-truth labeling processes. We repeat our previous anal-
yses as those in Section 5.1 and obtain similar results (see
Supporting Information Table A7).
5.5.3 Firm-based cross-validation
Our previous results demonstrate the effectiveness of TDT
features, especially context and motive features, in detect-
ing financial disinformation. As the SEC investigation only
charged a limited number of firms (12 firms), one may con-
cern that article-based cross-validation likely causes potential
information leakage. The classifiers may simply identify
firms rather than detecting context and motives for dis-
information. To alleviate such a concern, we focus on a
subsample of articles that are related to the 12 firms and
conduct the firm-based cross-validation. In the leave-one-firm
out cross-validation, we create 12 train/test pairs where each
test set includes articles related to one of the 12 firms, yet
the corresponding training set does not include any article
for the firm. We repeat the main analysis on these train-
ing/test pairs. Results are reported in Supporting Information
Table A8. We observe that models with TDT features still
outperform the baseline models (LIWC and BERT), and
contextual motive features still contribute the most to the
model. These observations showed that even for a single firm,
financial disinformation is more likely to happen in certain
situations.
5.6 Explainability of the TDT-based model
One of the advantages of a theory-driven design is its
explainability. Rai (2020) emphasized the importance of
explainability and interpretability for machine learning.
According to Rai (2020), explainability can be attributed to
two parts: theoretical explanations of the model (i.e., use
comprehensive and meaningful features) and technical expla-
nations of a prediction (i.e., provide technical explanations
for a specific prediction). The theoretical explainability is
first achieved through the theory-driven design process. The
design of our proposed model is guided by the TDT and
empirical IS and finance studies; thus, the TDT-based model
can explain which theoretical aspects lead to the predicted
result.
To generate explanations for the TDT-based model, we
designed a results explanation module in our system. The
module calculates Shapley values for each prediction, a con-
cept from coalitional game theory, to determine the features’
contributions to the predicted result. The Shapley value is
the expected marginal contribution over all possible coali-
tions (Shapley, 1953). In other words, the absolute value of
the Shapely value represents feature importance, and the sign
of the Shapely value indicates the force direction to posi-
tive or negative prediction. Studies have demonstrated that
interpreting machine learning output with the Shapley value
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ZHANG ET AL.
can help users, especially nonexpert users, in understand-
ing the output (Štrumbelj & Kononenko, 2014). This module
will automatically generate a report for each prediction based
on the calculated Shapley values. For illustration, we report
the Shapley value analysis for the RF model with all TDT-
based features. Results on other classifiers show a similar
pattern.
At the global level, summarizing the Shapley value for
all predictions can illustrate the importance and actual effect
of different features. We report the summary of the Shapely
value analysis in Figure 5. In Figure 5, the bar graph on the
left panel reports the mean absolute Shapley value of the
top 20 features across all predictions; such a value and its
rank represent feature importance. We can see that the fea-
ture importance measured by the Shapley value is similar to
the results in the previous feature selection analysis. In the
general context motive, sender demeanor, and coherence are
the most important feature categories. The bee swarm plot in
the right panel of Figure 5 reports the distribution of actual
Shapley values, the more positive the value is, the more force
it to predict an article as fake. The dot’s color from blue
to red represents the low to high feature values. From the
distribution, we can interpret the actual effects of different
features.
MC is the most important feature. Low MC is associated
with a higher chance of being fake. Similarly, we can inter-
pret that low asset turnover (AT) increases the probability of
fake news. Such patterns are consistent with previous empir-
ical findings that argue small firms under financial pressure
are more likely to be associated with financial disinforma-
tion (Kogan et al., 2019; Siering, 2019). We notice that some
marginal effects observed here are actually opposite to find-
ings in financial statement fraud studies. For example, in
Abbasi et al. (2012), high AT indicates manipulation through
fictitious sales. Such differences indicate that, to hide finan-
cial depressions from investors, firms might utilize online
disinformation as an alternative to costly financial statement
manipulation.
At the single article level, the Shapely value can pro-
vide reasons for each prediction. In Figure 6, we illustrate
the predictions for an investigated fake news (“6 Stocks
Trading with Momentum: Can It Continue?”) targeting the
stock of GALE. The baseline model wrongly predicts it as
legitimate, while the TDT model correctly classifies it as
fake. The bottom panel reports the explanation of the base-
line model (LIWC) prediction. The baseline model does
not detect enough abnormal patterns in LIWC features and
estimates the probability of being fake as 32%. However,
the TDT model detects abnormal patterns in context motive
features (e.g., small firm size, low asset quality, AT) and
sender demeanor features (high number of subcommuni-
ties the article distributed). The detected abnormal patterns
drive the TDT model to predict that the article has a prob-
ability of 93% to be fake. We also provide another article
example to show how TDT-based features help to reduce
the false-positive prediction in Supporting Information
Figure A1.

DETECTING FINANCIAL DISINFORMATION
FIGURE 5 Global summary of the Shapely value [Color figure can be viewed at wileyonlinelibrary.com]
FIGURE 6 An example of a prediction explanation [Color figure can be viewed at wileyonlinelibrary.com]
6 DISCUSSION AND CONCLUSIONS
Fake news has received plenty of attention due to social
media’s substantial influence on the political and social
domains (Grinberg et al., 2019). The financial sector, includ-
ing financial markets and crowd-sourced financial services,
also suffers from the prevalence of fake news (Clarke et al.,
2021). However, the attention on financial disinformation is
rather limited. Adopting TDT as the kernel theory, we pro-
posed, implemented, and evaluated an explainable machine
learning system for financial disinformation detection. Our
proposed system operationalized TDT to extract five cate-
gories of information (communication context and motives,
sender demeanor, information from third parties, communi-
cation coherence, correspondence information) from multiple
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3175
Production and Operations Management
sources. Rigorous evaluations demonstrated that our system
effectively and consistently outperforms baseline methods in
detecting financial disinformation under different settings and
conditions.
6.1 Theoretical implications
This study offers several theoretical implications for future
research. First, it showcases an instance of theory-driven
machine learning system design to solve a relevant prob-
lem about financial disinformation detection. Kernel theories
play an important role in design science research (Liu et al.,
2020). We ground our design based on TDT theory (our
kernel theory) and propose a comprehensive list of feature

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Production and Operations Management
categories with specific dimensions and measurements that
are likely to be associated with financial disinformation. This
research illustrates how to transform abstract TDT constructs
into computable metrics by combining theories and empir-
ical findings. Our extensive design evaluations demonstrate
the superior efficacy of our proposed IT artifact and the
relative importance of each of the feature categories when
predicting financial disinformation. We hope that this process
can inform future studies of theory-driven design in the IS
community.
Second, this research augments our understanding of finan-
cial disinformation. Despite the growing interest in examin-
ing various impacts of financial disinformation (Clarke et al.,
2021; Kogan et al., 2019), the detection method to iden-
tify financial disinformation is rather limited. Measurement
errors or misclassifications of machine learning techniques
can introduce systematic biases to econometric estimations
and affect the validity of statistical inference. Our proposed
system to detect financial disinformation is shown to be both
effective and robust under different scenarios. In this regard,
this research fills a void and offers a gateway for future
empirical studies that seek to examine the causal impacts of
financial disinformation.
The evaluation process of design science research offers
interesting observations that expand the previous theoreti-
cal understanding of disinformation. Our results highlight
the importance of situational cues (such as communication
context and motive, correspondence information) rather than
the textual content and the diffusion patterns of financial
news on social media platforms in detecting disinformation.
While Shu et al. (2020b) have found that propagation pat-
terns are effective in detecting political/social disinformation,
we demonstrate that the diffusion patterns of news articles
on social media platforms are not as important as other
factors such as communication context and motive, commu-
nication coherence, and correspondence information. Such
situational cues are likely to play an increasingly important
role in future financial disinformation detection because the
content of a news article can be easily manipulated, and
the linguistic-feature-based detection methods might fail to
deliver the correct judgment (Shu et al., 2020a). The emer-
gence of automatic text generators, like GPT-2 (Radford
et al., 2019), will further complicate things (in terms of dis-
information detection). Hence future studies on fake news
need to consider the situational information surrounding the
news.
Last but not least, we provide intuitive explanations and
interpretations of model results through both a theoretical
lens and a postmodel interpretable tool, the Shapley value
analysis. Recent advances in machine learning techniques
(e.g., statistical learning and deep learning) have drasti-
cally improved prediction performance in many domains.
However, the interpretability of the findings using those tech-
niques is low. Doshi-Velez and Kim (2017) pointed out that a
single or several metrics, such as accuracy, F-1 score, AUC,
etc., are not capable of capturing the complete story of most
real-world tasks. To fill this gap, we introduce the Shap-
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ZHANG ET AL.
ley value to show the marginal contribution of the selected
features on a predicted outcome. The Shapley values can
help readers to deeply understand the underlining mechanism
of the proposed detection model and also provide feedback
to the adopted conceptual theory. We call for more future
research that seamlessly unifies advanced machine learn-
ing algorithms and extant theories to solve relevant business
problems.
6.2 Practical implications
One practical implication of this study is to help various
financial social media platform owners, such as Seeking
Alpha and StockTwits, in combating and mitigating fake
news threats on their platforms. Clarke et al. (2021) indicated
that the presence of fake news decreases users’ trust in all
news articles, thus eroding the overall social welfare. Many
social media platforms have allocated resources to com-
bat fake news by hiring professional editors for censorship
(Clarke et al., 2021). That approach may not be economi-
cally feasible in the long term. Our proposed system can be a
useful complement to help editors make informed judgments
more efficiently. In addition, the ability to automatically
label news articles (fake or nonfake) will increase users’
confidence about legitimate financial news on the platform,
thus leading to higher user engagement and user satisfac-
tion with the financial social media platform (Kim et al.,
2019).
Another practical implication is that this study can poten-
tially help financial market regulators like the SEC, which is
responsible for maintaining fair, orderly, and efficient finan-
cial markets in the United States. Financial disinformation
can hurt the fairness and distort the operations of financial
markets (Kogan et al., 2019). Our proposed system can help
financial market regulators in monitoring behaviors of differ-
ent market participants and mitigating the negative impacts of
financial disinformation on time.
6.3 Limitations and future directions
This research has several limitations. First, our ground-truth
data (especially the for-sure fake financial news) are lim-
ited. The small number of positive instances might hinder
the training and the performance of machine learning. There
are several ways to address this issue. One approach is to
hire professional auditors to inspect financial news on social
media platforms and provide manual labeling of fake or legit-
imate financial news. The other concern is the noisy label
problem of legitimate news. Even though we validated our
results using samples created by different criteria, more work
may be needed to create a reliable training dataset. Finally,
as a future research direction, we are eager to apply our
method to automatically detect fake news circulated online
and then empirically evaluate the business impacts of such
content.

DETECTING FINANCIAL DISINFORMATION
AC K N OW L E D G M E N T S
The authors thank the entire review team for their valuable
suggestions and guidance to improve the study. The second
author was partially supported by the National Natural Sci-
ence Foundation of China under Grant No. 72102106 and by
the National Social Science Foundation of China under Grant
No. 21ZDA033. Qianzhou Du is the corresponding author,
and all authors contributed equally to the work.
ORCID
Xiaohui Zhang https://orcid.org/0000-0001-6379-0087
Qianzhou Du https://orcid.org/0000-0002-8080-2200
Zhongju Zhang https://orcid.org/0000-0001-9200-2369
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S U P P O R T I N G I N F O R M AT I O N
Additional supporting information can be found online in the
Supporting Information section at the end of this article.
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How to cite this article: Zhang, X., Du, Q., &
Zhang, Z. (2022). A theory-driven machine learning
system for financial disinformation detection.
Production and Operations Management, 31,
3160–3179. https://doi.org/10.1111/poms.13743