Local Bias in Google Search and the Market Response Around Earnings Announcements

58 Pages Posted: 10 Dec 2018

See all articles by Sabrina Chi

Sabrina Chi

Texas Tech University - Area of Accounting

Devin M. Shanthikumar

University of California, Irvine - Paul Merage School of Business

Date Written: 2017

Abstract

We examine the impact of distance on Internet search, and the effect of the “local bias” in search on the stock market response around earnings announcements. We find significant local bias in search behavior. Motivated by theories explaining local bias, local information advantage and familiarity bias, we predict and find that firms with higher local bias in search experience higher bid-ask spreads, lower trading volumes, and lower earnings response coefficients at the time of earnings announcements, consistent with non-local investors relying more than locals on public information announcements. Consistent with local information advantage, we find that in the week prior to the announcement, firms with higher local bias have higher bid-ask spreads, higher trading volumes, and returns that are more predictive of the coming earnings surprise. Consistent with familiarity bias, firms with higher local bias in search experience stronger post-earnings-announcement drift. We use unique predictions, propensity score matching, and two-stage least squares to identify the effects of local bias separately from the effects of overall visibility. Overall, we show there is significant local bias in search, and that this local bias has a significant impact on the market response around earnings announcements.

Keywords: geography, local bias, Google, investor attention, information asymmetry, earnings response coefficient, post-earnings-announcement drift, investor psychology

JEL Classification: M40, M41

Suggested Citation

Chi, Sabrina and Shanthikumar, Devin M., Local Bias in Google Search and the Market Response Around Earnings Announcements (2017). The Accounting Review, Vol. 92, No. 4, July 2017. Available at SSRN: https://ssrn.com/abstract=3285878

Sabrina Chi

Texas Tech University - Area of Accounting ( email )

P.O. Box 42101
Lubbock, TX 79409
United States

Devin M. Shanthikumar (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
SB 440
Irvine, CA 92697-3125
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
27
Abstract Views
460
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information