Capital Market Consequences of Generative AI : Early Evidence from the Ban of ChatGPT in Italy

On March 31st, 2023, the Italian data protection authority found that ChatGPT violated data protection laws and banned the service in Italy, providing a natural experiment to assess the economic consequences of generative AI. Leveraging this event, we show that Italian firms with greater exposure to the technology exhibit an underperformance of around 9% compared to firms with lower exposure throughout the ban period. We observe a more significant negative impact on stock value for smaller and newly established companies, supporting a linkage to creative destruction. Bid-ask spreads widen during the ban, particularly for firms with fewer institutional investors, limited analyst coverage, and a lower presence of foreign investors. The evidence suggests a dual role of ChatGPT in enhancing firm productivity and investor information processing