Panda Games: Corporate Disclosure in the Eclipse of Search

We show that firms strategically alter their disclosure behaviors when the channel to transmit information is severed. We conduct textual analysis and exploit an exogenous event—Google’s 2010 surprising withdrawal from mainland China, which significantly hampers domestic investors’ ability to access foreign information. Following Google’s exit, Chinese firms’ announcements on their foreign transactions become more bullish in comparison to similar announcements prior to the exit and to those that involve only 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, firms with existing foreign operations issue rosier annual reports and more likely manage their earnings upwards after Google’s departure. A more optimistic announcement or annual report allows insiders to sell more shares at a higher price.