Investor Information Demand: Evidence from Google Searches Around Earnings Announcements

The objective of this study is to investigate factors that influence investor information demand around earnings announcements and to provide insights into how variation in information demand impacts the capital market response to earnings. The Internet is one channel through which public informatio...

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Bibliographic Details
Published inJournal of accounting research Vol. 50; no. 4; pp. 1001 - 1040
Main Authors DRAKE, MICHAEL S., ROULSTONE, DARREN T., THORNOCK, JACOB R.
Format Journal Article
LanguageEnglish
Published Malden, USA Blackwell Publishing Inc 01.09.2012
Wiley Subscription Services
Blackwell Publishing Ltd
Subjects
Access to information
Accounting research
Analytical forecasting
Capital market
Control variables
Dividends
Earnings
Earnings announcements
Earnings forecasting
Forecasting models
Forecasting standards
Information
Internet
Investors
Modeling
Search engines
Studies
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Summary:The objective of this study is to investigate factors that influence investor information demand around earnings announcements and to provide insights into how variation in information demand impacts the capital market response to earnings. The Internet is one channel through which public information is disseminated to investors and we propose that one way that investors express their demand for public information is via Google searches. We find that abnormal Google search increases about two weeks prior to the earnings announcement, spikes markedly at the announcement, and continues at high levels for a period after the announcement. This finding suggests that information diffusion is not instantaneous with the release of the earnings information, but rather is spread over a period surrounding the announcement. We also find that information demand is positively associated with media attention and news, and is negatively associated with investor distraction. When investors search for more information in the days just prior to the announcement, preannouncement price and volume changes reflect more of the upcoming earnings news and there is less of a price and volume response when the news is announced. This result suggests that, when investors demand more information about a firm, the information content of the earnings announcement is partially preempted.
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ArticleID:JOAR443
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We thank the editor, Abbie Smith, and an anonymous referee for excellent guidance and suggestions on the paper. We thank Ray Ball, Cory Cassell, Ted Christensen, Rebecca Files, Bradley Lail, Ed Maydew, James Myers, Stephanie Rasmussen, Lynn Rees, Andy Van Buskirk, David Wood, and workshop participants at the 2011 FARS Conference, Brigham Young University, Duke University, the University of Texas at Dallas, the University of California, Irvine, The Ohio State University, and the Division of Risk, Strategy, and Financial Innovation at the U.S. Securities and Exchange Commission for comments and suggestions. We thank Yung‐Yu Chen for assistance in acquiring Google search data and Eugene Soltes for graciously sharing his press coverage data. The financial support of the Fisher College of Business and Foster School of Business is gratefully acknowledged. This paper was previously titled “Googling for Information Around Earnings Announcements.” We will provide the Google search data used in this study to any academic with interest. Please see our faculty Web sites for information on how to download the data.
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ISSN:0021-8456
1475-679X
DOI:10.1111/j.1475-679X.2012.00443.x