The Geographic Dispersion of Google Search and the Market Reaction to Earnings Announcements

• In Event: Investors' Search for Information on the Internet

Abstract

We use the geographic dispersion of Internet search as a measure of the breadth of investor
interest in a firm, and hypothesize that broader interest will impact the spread of information,
both in affecting information asymmetry around earnings announcements and the market’s
response to earnings announcement information. We predict and find that firms tend to have a
disproportionate amount of search concentrated in their headquarters state. However firms vary
significantly in how geographically dispersed the investors are who search for the firm.
Controlling for other elements of the firms’ information environment, including the
announcement window abnormal Google search and press coverage, we find that firms with a
higher geographic dispersion of individuals searching for the firm experience lower abnormal
bid-ask spreads and higher abnormal trading volume at the time of the announcement, suggesting
higher liquidity and lower information asymmetry. We also find that more widely searched firms
experience larger earnings response coefficients during the earnings announcement window and
weaker post-earnings-announcement drift, suggesting a faster incorporation of information into price for firms with more geographically dispersed search. Overall, our results suggest that geographic proximity affects search, and firms with more geographically dispersed search
experience better market responses to earnings announcements.

Authors

• Sabrina Chi, University of Arkansas

• Devin Shanthikumar, University of California, Irvine