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Internet searching and stock price crash risk: Evidence from a quasi-natural experiment

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  • Xu, Yongxin
  • Xuan, Yuhao
  • Zheng, Gaoping

Abstract

In 2010, Google unexpectedly withdrew its searching business from China, reducing investors’ ability to find information online. The stock price crash risk for firms searched for more via Google before its withdrawal subsequently increases by 19%, suggesting that Internet searching facilitates investors’ information processing. The sensitivity of stock returns to negative Internet posts also rises by 36%. The increase in crash risk is more pronounced when firms are more likely to hide adverse information and when information intermediaries are less effective in assisting investors’ information processing. In addition, liquidity (price delay) decreases (increases) after Google's withdrawal.

Suggested Citation

  • Xu, Yongxin & Xuan, Yuhao & Zheng, Gaoping, 2021. "Internet searching and stock price crash risk: Evidence from a quasi-natural experiment," Journal of Financial Economics, Elsevier, vol. 141(1), pages 255-275.
    • Handle: RePEc:eee:jfinec:v:141:y:2021:i:1:p:255-275
    DOI: 10.1016/j.jfineco.2021.03.003
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    More about this item

    Keywords

    Stock price crash risk; Internet searching; Investor behavioral bias; Information processing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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