Big Data and Firm Risk

Abstract

This paper investigates the impact of firm data collection and analysis of collected data on the riskiness of firm cash flows. I use a scraped data set of the third party resources loaded on firms’ websites as a measure of firm data collection and analysis practices. I find that firm use of less effective web analytics is associated with an increase in the variance of sales, inventory, and both fixed and variable costs. This effect is despite a lack of change in the level of these variables. Looking at the effect of treatment on the treated, there is higher profit and sales variance during times of higher uncertainty. I use differences in web analytics technology and a change in their relative effectiveness as my identification strategy. As a case study of a large negative demand shock, I look at differences in firm reactions to COVID-19 based on their web analytics usage.