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

72 Pages Posted: 18 Mar 2014 Last revised: 2 Jun 2015

See all articles by Nerissa C. Brown

Nerissa C. Brown

University of Illinois at Urbana-Champaign

Han Stice

George Mason University

Roger M. White

Arizona State University (ASU) - School of Accountancy

Date Written: February 16, 2015

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.

Keywords: mobile communication, local bias, liquidity

JEL Classification: D83, G12, G14, M41

Suggested Citation

Brown, Nerissa C. and Stice, Han and White, Roger M., Mobile Communication and Local Information Flow: Evidence from Distracted Driving Laws (February 16, 2015). Journal of Accounting Research, Vol . 53, No. 2, 2015, Available at SSRN: https://ssrn.com/abstract=2410372 or http://dx.doi.org/10.2139/ssrn.2410372

Nerissa C. Brown (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Han Stice

George Mason University ( email )

Fairfax, VA
United States

Roger M. White

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

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