If Google left Australia, what would happen to the stock market?
While Google has backed down on threats to leave Australia for now, what would happen to the ASX if it did?
There is precedent for Google withdrawing from countries – it exited China in 2010.
An RMIT study has examined China’s experience and argued if this happened in Australia, investors would be led to make less informed decisions.
And while it is easy to blame search engines when your stock is going down, the study actually found limiting internet searches increases the risk of a stock market crash by 19 per cent.
Of course, it would not be armageddon if Google left – Australia would have alternative search engines.
But the study’s lead Dr Gaoping Zheng argues things would be substantially different for investors.
“Our research emphasises the importance of access to diverse results and if Google did decide to withdraw, it could have a destabilising impact on the economy,” she said.
Citing the China experience, Dr Zheng said researchers noted Google “was more likely to show content from international websites such as Bloomberg, Reuters or the New York Times, which are free from political constraints to talk about what is happening.
“Investors were more likely to overvalue stocks due to biased information found through Chinese-owned search engines.
“If managers withhold negative news, investors are less likely to mitigate their misconceptions and biases surrounding a certain stock.”
The research compared Chinese-listed entities that had a high search volume on Google prior to 2010 and firms not searched for on Google prior to 2010.
It averaged the stock price crash risk of both firms and found firms more regularly searched for on Google were 19 per cent more stable.
It found that when investors have unbiased information about companies’ performance – helped by unrestricted internet search results – investors made more informed decision.
Conversely, when investors see overly positive information, stocks can become overvalued temporarily and this increases the risk of stock market crashes by 19 per cent.
Dr Zheng said this was a challenge to conventional thinking.
“Until now it’s been widely thought that unrestrictive internet searches reult in bias and an overvaluation of stocks but that would mean restricting search would decrease stock market crash risk,” she said.
“Instead, we saw a significant jump.
“This suggests internet searching does not exacerbate investor’s biases – instead, it facilitates their ability to access and analyse information.”