Protecting the Giant Pandas: Newspaper Censorship of Negative News

Abstract

We investigate newspaper censorship of firm-level negative news using a rare setting in which many companies were involved in similar tunneling scandals. We find that the Chinese censorship authorities restrict the dissemination of tunneling news on state-owned enterprises, firms with greater numbers of employees, and large taxpayers. An examination of the difference in censorship behaviors between the central and provincial authorities reveal three incentives that direct the censorship practices: strong local protectionism, cross-provincial competition, and the concern for the relative positions in the political power system. Finally, we show that the tunneling news that is reported leads to negative market reactions and greater trading volumes, indicating that the news that survives the censorship has information content.