Retail investors' accessibility to the internet and firm-specific information flows: Evidence from Google's withdrawal

Abstract

Internet search is an important channel through which retail investors gather and process information. This paper investigates whether limiting the retail investors' accessibility to the Internet could affect the incorporation of firm-specific information in prices, as measured by stock price synchronicity. Using Google's withdrawal of search services from China as an exogenous shock, I employ the matching-based difference-in-differences design and find an increase in synchronicity after Google's withdrawal, equivalent to a 4.6% growth in R2. Further analysis shows that the synchronicity measure arguably captures firm-specific information rather than noise. In addition, the improved synchronicity is concentrated in subsamples where firms' corporate disclosures are verbose and few, firms are geographically inaccessible, and the managerial entrenchment effect dominates the incentive alignment effect in corporate governance. The results are not driven by alternative explanations and are robust to alternative samples, alternative variable constructions, and the inclusion of more control variables.