Panda Games: Corporate Disclosure in the Eclipse of Search

["DAVID FARBER" <dfarber () me com>]

> Begin forwarded message:
>
> From: Dewayne Hendricks <dewayne () warpspeed com>
> Subject: [Dewayne-Net] Panda Games: Corporate Disclosure in the Eclipse of Search
> Date: September 28, 2018 at 3:59:24 AM GMT+9
> To: Multiple recipients of Dewayne-Net <dewayne-net () warpspeed com>
> Reply-To: dewayne-net () warpspeed com
>
> [Note:  This item comes from friend David Rosenthal.  DLH]
>
> Panda Games: Corporate Disclosure in the Eclipse of Search
> By Kemin Wang, Xiaoyun Yu, Bohui Zhang
> Sep 26 2018
> <http://voxchina.org/show-3-100.html>
>
> We conduct a textual analysis and exploit an exogenous event — Google’s 2010 surprising withdrawal from the Chinese 
> mainland — which significantly hampered domestic investors’ ability to access foreign information. Following Google’s 
> exit, Chinese firms’ announcements concerning their foreign transactions become more bullish in comparison to similar 
> announcements prior to the exit and to those that involve only domestic transactions. This finding suggests that 
> firms strategically alter their disclosure behaviors when the channel to transmit information is severed.
>
> Researchers and policymakers have long recognized the importance of a transparent information environment in capital 
> markets. In general, corporate transparency can be achieved by encouraging market participants to produce information 
> or by facilitating information dissemination to investors. While most of the literature focuses on the information 
> production effort of various intermediaries including news media and financial analyses, in this paper, we study how 
> information transmission efficiency affects corporate transparency and shapes investors’ information sets.  
> Specifically, we use Google’s exit from China as a controlled experiment to identify and evaluate the efficiency of 
> information dissemination, rather than production, in shaping corporate disclosure strategies. 
>
> In 2006, Google officially entered the Chinese mainland market with a local search engine, Google.cn, after agreeing 
> to abide by China’s censorship rules. Prior to 2006, the search engine market in China was monopolized by Baidu, a 
> Google-like search engine that has been publicly traded on NASDAQ since 2005. After 2006, Google’s market share 
> steadily increased, reaching one third of China’s market for internet searches in 2009. In comparison, as of January 
> 2010, Baidu controlled 63 percent of China’s market share. The search engine market in China had become a duopoly. In 
> many ways, Google and Baidu share common ground. Both focus on the internet search business and operate their own 
> proprietary search algorithms. Both generate revenue via paid advertising platforms, provide their own webmaster and 
> keyword analysis tools, and use geo-targeting to generate more relevant query results for users.
>
> However, the two differ significantly in that by providing internet searches globally, Google ranks the quality of 
> the content without any bias in its search. Baidu, on the other hand, primarily serves the Chinese market and ranks 
> Chinese language content higher. In fact, many analysts have attributed Baidu’s leading position in the Chinese 
> market to a combination of factors, including a keen understanding of local tastes. While Google executives insist 
> they had better technology, Baidu counters that it has local expertise. For these reasons, it has become a general 
> consensus among Chinese web users to use Baidu to search for local (Chinese-based) information and to use Google for 
> non-local information.
>
> The two firms also differ in their focus on search quality. While Google ranks the quality content and inbound link 
> quality higher compared to quantity when a search is executed, Baidu does not have a very strong quality content 
> requirement, ranking high on both inbound link quantity and quality. Baidu also gravitates more towards a “commercial 
> search,” allowing brands to pay a high premium to display at the top of the search results. As such, highly 
> profitable keywords rank higher than an organic search. Lastly, by focusing primarily on the Chinese mainland market 
> and searches in the Chinese language, Baidu lags behind Google in search quality, especially for foreign information.
>
> Google’s 2010 Exit
>
> On January 12, 2010, Google publicly announced the discovery of a large-scale cyberattack originating from China, 
> which occurred in late 2009, that Google believed was aimed at gathering information on Chinese human rights 
> activists as well as plundering its intellectual property. As a result, it was “no longer willing to continue 
> censoring” results on Google.cn and threatened to shut down its China operation. On March 23, 2010, Google began its 
> partial withdrawal from the Chinese market by ceasing to censor internet search results as required by local law and 
> moving its search engine for Chinese web users offshore. Internet users who typed in the search engine’s address were 
> redirected to an office based in Hong Kong, where the local government doesn’t censor Web browsing. On March 30, 
> 2010, searching via all Google search sites in all languages was banned in the Chinese mainland. Any attempt to 
> search using Google resulted in a DNS error. On June 30, 2010, Google ended the automatic redirect of Google China to 
> Google Hong Kong. Google search has continued to be blocked in China since its departure from the Chinese mainland. 
>
> [snip]
>
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