Big Data as a Governance Mechanism

TLDR

Recent computing advances enable technology firms to gather real‑time, granular indicators such as consumer transactions and satellite images, which are sold to investment professionals and increase price informativeness by lowering information‑acquisition costs, especially for sophisticated investors. This study empirically investigates two effects of alternative data availability: the impact on stock price informativeness and the disciplining effect on managers' actions. The analysis shows that alternative data availability leads managers to cut opportunistic trading and improves investment efficiency, aligning with higher price informativeness. Received June 1 2017; editorial decision June 1 2018; an Internet Appendix accompanies the published paper on the Oxford University Press website.

Abstract

This study empirically investigates two effects of alternative data availability: stock price informativeness and its disciplining effect on managers' actions. Recent computing advancements have enabled technology companies to collect real-time, granular indicators of fundamentals to sell to investment professionals. These data include consumer transactions and satellite images. The introduction of these data increases price informativeness through decreased information acquisition costs, particularly in firms in which sophisticated investors have higher incentives to uncover information. I document two effects on managers. First, managers reduce their opportunistic trading. Second, investment efficiency increases, consistent with price informativeness improving managers' incentives to invest and divest efficiently. Received June 1, 2017; editorial decision June 1, 2018 by Editor Wei Jiang. The Author has furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.