Using Google Searches of Firm Products to Assess Revenue Quality and Detect Revenue Management

49 Pages Posted: 13 Oct 2018

See all articles by Peng-Chia Chiu

Peng-Chia Chiu

The Chinese University of Hong Kong (CUHK)

Siew Hong Teoh

University of California, Irvine - Accounting Area

Yinglei Zhang

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Xuan Huang

California State University, Long Beach

Date Written: September 20, 2018

Abstract

This paper presents evidence that Google searches of firm products (SVI) provide information about firm sales and that large discrepancies between reported sales growth and SVI growth can detect upward revenue manipulation. Firms with such large discrepancies—which we call MUP firms—have (a) low-quality revenues measured as sales growth persistence, (b) increases in accounts receivable, (c) lower allowance reserved for bad debts, and (d) higher upward revenue misstatements that are later subject to SEC enforcement actions, consistent with upward revenue manipulation. Investors do not adequately discount for MUP firms’ low revenue quality at the earnings announcement; the negative post-announcement return reaction is consistent with a market correction of the initial overvaluation from the upward revenue manipulation.

Keywords: Google Search, Financial Reporting Quality, Revenue Management and Fraud Detection, Nowcasting using Big Data, Auditing Revenues using Big Data, Market Efficiency

JEL Classification: M41, G14

Suggested Citation

Chiu, Peng-Chia and Teoh, Siew Hong and Zhang, Yinglei and Huang, Xuan, Using Google Searches of Firm Products to Assess Revenue Quality and Detect Revenue Management (September 20, 2018). Available at SSRN: https://ssrn.com/abstract=3252314 or http://dx.doi.org/10.2139/ssrn.3252314

Peng-Chia Chiu

The Chinese University of Hong Kong (CUHK) ( email )

Hong Kong
Hong Kong

Siew Hong Teoh (Contact Author)

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

Yinglei Zhang

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong

Xuan Huang

California State University, Long Beach ( email )

1250 Bellflower Blvd
Long Beach, CA 90064
United States

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