Mobile Communication and Local Information Flow: Evidence from Distracted Driving Laws

Abstract

We examine the influence of mobile communication on local information flow and local investor activity using the enforcement of state-wide distracted driving restrictions, which are exogenous events that constrain mobile communication while driving. By restricting mobile communication across a potentially sizable set of local individuals, these restrictions could inhibit local information flow and in turn, the market activity of stocks headquartered in enforcement states. We first document a decline in Google search activity for local stocks when restrictions take effect, suggesting that constraints on mobile communication significantly affect individuals' information search activity. We further find significant declines in local trading volume when restrictions are enforced. This drop in liquidity is 1) attenuated when laws provide substitutive means of mobile communication and 2) magnified when locals have long car commutes and when their daily commutes overlap with regular exchange hours. Moreover, trading volume suffers the most for local stocks with lower institutional ownership, less analyst coverage, and more intangible information. Additional analyses show lower intraday volume during local commute times when mobile connectivity is constrained. Together, our results suggest that local information and local investors matter in stock markets and that mobile communication is an important mechanism through which these elements operate to affect liquidity and price discovery. This article is protected by copyright. All rights reserved.3 mutual fund managers tend to overweight stocks from their home states and that these stockholdings do not outperform other holdings. 8 Other studies also provide evidence in support of the information-based hypothesis. For instance, Pirinsky and Wang [2006] find evidence of strong return comovement among stocks headquartered in the same geographical This article is protected by copyright. All rights reserved. 12 Recent research has begun to examine the mechanisms through which local information diffuses. Prior studies document that social interaction and word-of-mouth communication among individuals play important roles in the diffusion of local stock information and in individuals' decision to participate in stock markets (Hong, Kubik, and Stein [2004], Ivković and Weisbenner [2007], Shive [2010]). Local media sources and local equity analysts also serve as conduits for the flow of local stock information. For instance, Engelberg and Parsons [2011] find that local newspaper coverage of earnings announcements stimulates local trading. Using exogenous newspaper strikes in several countries, Peress [2014] finds lower share turnover and higher stock return volatility and dispersion in the country's stock market during strike days. 9 Regarding equity analysts, Malloy [2005] finds that local analysts provide more accurate earnings forecasts and stock recommendations for local firms, while Bae, Stulz, and Tan [2008] find that local domestic analysts make more precise forecasts for ...

Causal Inference in Accounting Research

“…That private communication with management is an important source of information is confirmed by Brown et al [2015]. Brown et al survey and interview financial analysts to understand how they think about a variety of issues.…”

“….the market activity of stocks headquartered in enforcement states.” Miller and Skinner [2015, p. 229] suggest that “given the authors' setting and research design, it is difficult to imagine a story under which the types of reverse causality or correlated omitted variables explanations that we normally worry about in disclosure research are at play.” However, notwithstanding the apparent robustness of the research design, the results would be much more compelling if there were more detailed evidence regarding the precise causal mechanism through which the estimated effect occurs and the authors appear to go to lengths to provide such an account . For example, evidence of trading activity by local investors while driving prior to, but not after, the implementation of distracted driving restrictions would add considerable support to conclusions in Brown, Stice and White []…”

“…However, notwithstanding the apparent robustness of the research design, the results would be much more compelling if there were more detailed evidence regarding the precise causal mechanism through which the estimated effect occurs and the authors appear to go to lengths to provide such an account. 32 For example, evidence of trading activity by local investors while driving prior to, but not after, the implementation of distracted driving restrictions would add considerable support to conclusions in Brown, Stice and White [2015]. 33 As another example, many published papers have suggested that managers adopt conditional conservatism as a reporting strategy to obtain benefits such as reduced debt costs.…”

Is Accounting Information Still Relevant in the Internet Age? Research on the Determination of the Effect of Google Trends Data on Earnings Response Coefficient: Case of Vietnam

“…(Chi & Shanthikumar, 2017). There is also evidence of limiting individual investors' ability to conduct internet searches would negatively impact trading activities (Brown et al, 2015). Wikipedia information about the firms affected how investors react to bad news (Xin & Zhang, 2013).…”

The dark side of individual blockholder philanthropy

“…Table includes both the signing and maximum Google search interest dates, the latter of which were recorded in September 2018 or earlier. See Drake, Roulstone, and Thornock () and Brown, Stice, and White () for examples of research using Google search intensity to proxy for investor interest.…”