Does Information Blocking on Internet Matter Corporate Over-Investment: Evidence from a Quasi-Natural Experiment in China

Yingying Chang, Xingqiang Du and Quan Zeng

Emerging Markets Finance and Trade, 2023, vol. 59, issue 11, 3577-3609

Abstract: Focusing on Google’s withdrawal from mainland China as a unique setting, this study investigates the impact of information blocking on corporate over-investment. Using a sample of Chinese firms during the period of 2007 to 2014 and employing a difference-in-difference (DID) approach, our findings reveal that corporate over-investment is significantly higher for the treatment firms (firms with high international sales) in the post-period of Google’s withdrawal than that in the pre-period of Google’s withdrawal, suggesting that overseas information blocking boosts corporate over-investment for firms with more global business. Moreover, the positive relation between Google’s exit and firm-level over-investment is less pronounced for cross-listed firms than for non-cross-listed firms, implying that cross listing plays a crucial role in breaking overseas information blockade on internet search for domestic investors. Above findings are still valid after using alternative measures to capture over-investment and the treatment group. Mechanism analysis and heterogeneity tests show that Google’s exit may exacerbate agency conflicts and thus leads to an increase in corporate over-investment. Our study provides an important reference for the understanding of the roles of internet search in information transmission and corporate governance.

Date: 2023
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DOI: 10.1080/1540496X.2023.2223931

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