The Echoes of Muted Political Speech in Financial Speech

Does impairment of political speech affect financial speech? We exploit the introduction of the National Security Law (NSL) in Hong Kong in June 2020 to answer this question. We find that after the NSL enactment, compared to foreign analysts covering the same firms, local analysts self-censor their reports. Specifically, when firm-specific bad news hits, local analysts shade up their forecasts, use vaguer language, and respond more slowly to earnings announcements. This pattern is more pronounced for central state-owned enterprises as negative opinions on their poor performance may be deemed unpatriotic. Markets are aware of this self-censorship and respond accordingly.