Internet searching and stock price informativeness: Evidence from Google withdrawal in China
Shuxian Li, Xinheng Liu
TL;DR
The paper shows that reduced internet searching, like after Google's 2010 withdrawal in China, leads to less informative stock prices, especially for firms with more retail investors.
Contribution
The study provides causal evidence linking internet search availability to stock price informativeness using a quasi-natural experiment.
Findings
Firms with higher Google search volume saw a 10% drop in stock price informativeness after Google's withdrawal.
The effect was stronger for firms with more retail investors, larger state ownership, and poor analyst forecasts.
Internet searching helps retail investors gather firm-specific information more efficiently.
Abstract
We analyze whether and how internet searching impacts stock price informativeness. Using the 2010 Google withdrawal in China as a quasi-natural experiment, we establish a causal effect between internet searching and stock price informativeness using a difference-in-difference framework. We find that firms with higher Google search volume experience a 10% decrease in stock price informativeness after the Google withdrawal. The negative effect of the Google withdrawal on stock price informativeness is pronounced in firms with more retail investors, larger state-ownership, and poor analysts’ earnings forecasts. Our results suggest that retail investors can benefit from internet searching to collect and process firm-specific information more efficiently.
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Taxonomy
TopicsFinancial Markets and Investment Strategies · Auditing, Earnings Management, Governance · Corporate Finance and Governance