Panda Games: Corporate Disclosure in the Eclipse of Search

We show that firms strategically alter their disclosures 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. Optimism in disclosure is especially rosy if the press releases are conveying negative news or are issued by poorly governed firms. 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 government. The increase in search cost also appears to leave domestic news media and financial analysts more vulnerable to the influence of corporate disclosure. These optimistic announcements allow insiders to harvest higher returns from selling their shares and are associated with a higher likelihood of corporate misconduct.