Essays on information and financial economics

This thesis consists of two essays that study how the flow of information affects trading activities and corporate actions. Chapter 1 shows that financial media can have causal effects on market participants. I exploit random variation in the visual salience of corporate press releases to financial journalists as an instrument to media coverage. Doubling the amount of media coverage increases the number of EDGAR searches by 31% and the number of analysts issuing earnings forecasts by 78% in a two-day period. The evidence is most consistent with the theory of rational attention allocation: sophisticated investors acquire more information for media-covered events as media coverage signals higher variances of returns, and thus higher payoffs from having more precise information. Analysts cater to the increased information demand from institutional investors by responding to media-reported events. Chapter 2 exploits the increasing information flow via internet in the past decades as context and examines how competitive shocks from China impact U.S. innovation through two margins: the markets for innovation and for existing products. Using Chinese data, we map each industry to province Internet penetration levels using geographic agglomeration data. The resulting industry-year database indicates the ability of Chinese firms to acquire knowledge globally and compete in the market for intellectual property production. Increases in provincial Chinese Internet penetration are followed by sharp reductions in R&D investment and subsequent patents for U.S. firms, and increased patenting by Chinese firms. The new Chinese patents also cite the patents of treated U.S. firms at a high rate, consistent with increased intellectual property competition. In contrast, U.S. firms with fewer growth options and more tangible assets tend to increase R&D and patenting activity. Overall, both competition in intellectual property by Chinese firms and the asset competition of U.S. firms influence U.S. firm innovation.