Big Data as a Governance Mechanism

57 Pages Posted: 4 May 2018 Last revised: 9 Apr 2019

See all articles by Christina Zhu

Christina Zhu

University of Pennsylvania - The Wharton School

Date Written: July 9, 2018

Abstract

This study empirically investigates two effects of alternative data availability: stock price informativeness and its disciplining effect on managers’ actions. Recent computing advancements have enabled technology companies to collect real-time, granular indicators of fundamentals to sell to investment professionals. These data include consumer transactions and satellite images. The introduction of these data increases price informativeness through decreased information acquisition costs, particularly in firms in which sophisticated investors have higher incentives to uncover information. I document two effects on managers. First, managers reduce their opportunistic trading. Second, investment efficiency increases, consistent with price informativeness improving managers’ incentives to invest and divest efficiently.

Keywords: Price Informativeness, Insider Trading, Investment, Institutional Investors, Corporate Governance, Big Data, Technology

JEL Classification: G14, G12, G23, G34, O16, M12

Suggested Citation

Zhu, Christina, Big Data as a Governance Mechanism (July 9, 2018). Available at SSRN: https://ssrn.com/abstract=3164624 or http://dx.doi.org/10.2139/ssrn.3164624

Christina Zhu (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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