The "Google Effect": Linking Organic Search Visibility to Shareholder Value

Author: Gabriela Alves Werb (Goethe University Frankfurt)

Title: The "Google Effect": Linking Organic Search Visibility to Shareholder Value

Abstract: As firms increasingly depend on the exposure in the organic results from search engines to reach potential customers, a firm’s visibility in organic search results may strongly affect the value it delivers to shareholders. However, there is little knowledge about this relationship. Using a unique panel of 127 publicly listed firms over 7 years, this article shows that "visibility winners" have, on average, 1.1 basis points higher cumulative abnormal stock returns. The effect holds after controlling for finance fundamentals, firm-specific risk factors, market-wide and industry-specific shocks. For a typical firm in the sample, these additional returns translate into $22.5 million more value for shareholders in the long-term. The results of an event study with updates to Google’s ranking algorithm as a source of exogenous variation to visibility indicate that the effect is driven by investors updating their beliefs about the value of future cash flows of the firm, as well as by changes in equity risk.