The Information Gatekeeping Role of Search Engines: Evidence from Investor Trading

Graduate Thesis Or Dissertation

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Citeable URL: https://scholar.colorado.edu/concern/graduate_thesis_or_dissertations/jm214q90b

Abstract

Search engines exert substantial control over the flow of online information to users, including investors seeking firm-related information. In this study, I examine whether the information distribution decisions made by search engines have implications for these investors. Using a sample of merger and acquisition (M&A) announcements and Google search results, I find the way search engines order result pages affects market reactions to firm events. Specifically, search result pages aligned (misaligned) with investor information needs are associated with stronger (weaker) market reactions to firm M&A announcements. This result suggests that a search engine’s ordering decisions can either aid or hinder investor information processing and that monetary incentives may prevent investors from obtaining the most useful information set. Additionally, I exploit a publicly announced change to Google’s search algorithm and provide evidence that search engines alter the attributes of the information set supplied by journalists. Collectively, these findings emphasize the significance of search engines in the capital markets and highlight the importance of understanding their decision-making processes and the ongoing monitoring of their power.

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