Information search volume as a predictor of information explanatory power

Abstract

Purpose – This paper aims to examine whether information search frequency of accounting information is related to the explanatory power of accounting information for firm market value. It also examines whether information content and state of nature can have an impact on this relationship. Design/methodology/approach – The paper is an empirical study using Web search volume data collected from Google Trends and financial and market data collected from Compustat. Findings – This paper finds that investors use Web search engines as an alternative way to search for information they need, search frequency of accounting information is positively related to the explanatory power of accounting information for firm market value, the relationship is found differential between statements and categories within a statement depending on the information content and the relationship is found stronger during economic upturns. Research limitations/implications – This paper examines 59 accounting items that are cross-firm commonly reported and that have data availability in Compustat. The external validity might be an issue. Practical implications – This paper is of interest to standard setters, corporate management and academics who wish to understand and improve the value of accounting information in the capital market. Originality/value – This paper is the first study which provides a comprehensive examination of the impact of investors’ information search volumes on the explanatory power of accounting information. It is also the first paper that intrudes Google Trends search volume data into accounting research.