Panda Games: Corporate Disclosure in the Eclipse of Search

Abstract

We show that firms strategically alter their disclosure strategy when investors’ access to information via search engines is interrupted. We conduct a textual analysis and exploit an exogenous event—Google’s 2010 surprising withdrawal from mainland China, which significantly hampered domestic investors’ ability to search for foreign information but did not affect their cost to access domestic information. Following Google’s exit, Chinese firms’ announcements on foreign transactions become more bullish relative to domestic transactions. This effect is mitigated in the presence of foreign investors or analysts affiliated with foreign brokers, who are not subject to foreign information censorship by the Chinese government. Moreover, compared to those that operate domestically, firms with foreign operations issue rosier annual reports and manage earnings to a greater extent after Google’s departure; their stock prices also become less informative. These optimistic announcements or annual reports allow insiders to sell more shares at a higher price.