Internet searching and investment sensitivity to stock price: Evidence from a quasi-natural experiment

Although internet searching plays an important role in information gathering and processing, little attention is given to the impact of internet searching on the real economy. Using Google's sudden withdrawal from mainland China as a quasi-natural experiment, we examine the causal effect of internet searching on investment-to-price sensitivity using data from Chinese A-share listed companies from 2007 to 2014. We find that Google's withdrawal significantly reduced investment-to-price sensitivity. This effect is more pronounced when outside investors are more incentivized to acquire private information and when managers rely more on external information. Our results provide evidence that by influencing investors' information acquisition, internet searching plays a role in managers' ability to learn from prices to make investment decisions.