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

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.