Information search volume as a predictor of information explanatory power

• Date: 03 August 2015
• Published date: 03 August 2015
• DOI: https://doi.org/10.1108/IJAIM-06-2014-0042
• Pages: 238-252
• Author: Bixia Xu,Zhulin Huang
• Subject Matter: Accounting & Finance,Accounting/accountancy,Accounting methods/systems

Information search volume as a

predictor of information

explanatory power

Bixia Xu and Zhulin Huang

School of Business and Economics, Wilfrid Laurier University,

Waterloo, Canada

Abstract

Purpose – This paper aims to examine whether information search frequency of accounting

information is related to the explanatory power of accounting information for rm 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 nancial and market data collected from Compustat.

Findings – This paper nds 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 rm 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-rm

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 rst 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 rst paper that intrudes Google Trends search volume data into accounting research.

Keywords Search engine, Accounting information, Explanatory power, Information search volume

Paper type Research paper

Introduction

The Web has fundamentally enlarged the variety and complexity of information which

can be explored in Webometrics research. A large body of studies has found evidence on

the predictive power of Web search volume data for various economic, social and

political phenomena, including consumer behavior, stock prices, ination,

unemployment, political choices and university academic fames. Such predictive power

is built upon the belief that search items or topics capture real interests and business,

economic and societal issues. People search for information each day. With the

availability of search engines, they can key words (e.g. cash ows) to search and gather

information they need for their informed decision making. The keyword they enter is

called search word or search item. While this search behavior has become worldwide

common, no research has examined how users use search engines to search for

The current issue and full text archive of this journal is available on Emerald Insight at:

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IJAIM

23,3

238

Received 30 June 2014

Revised 13 July 2014

Accepted 14 July 2014

InternationalJournal of

Accountingand Information

Management

Vol.23 No. 3, 2015

pp.238-252

©Emerald Group Publishing Limited

1834-7649

DOI 10.1108/IJAIM-06-2014-0042