The effect of cybersecurity legislation on firm cost behavior: Evidence from China

Fangjun Wang, Hao Wang and Jiyuan Li

Pacific-Basin Finance Journal, 2024, vol. 86, issue C

Abstract: Cybersecurity risk has attracted the attention of legislators in various countries. This paper takes cybersecurity law (CSL) rollout in China as an exogenous event to study the impact of cybersecurity legislation on firm cost behavior. We find that cost stickiness decreases after the implementation of CSL. Our results also reveal that CSL reduces cost stickiness by mechanism of enhancing internal control, mitigating agency problem, and lowering managerial optimistic expectations. CSL's effect on cost stickiness exists in non-state-owned enterprises (non-SOEs) and firms in regions with low privacy sensitivity. CSL reduces stickiness of cost of goods manufactured (COGM), not R&D. CSL's effect on reducing cost stickiness can ultimately enhance firm value. Our research sheds light on the effect of cybersecurity mandates and advances literature on the impact of digital regulations on cost behavior.

Keywords: Cybersecurity; Legislation; Cost stickiness; Difference-in-differences (search for similar items in EconPapers)
JEL-codes: K24 K32 M15 M41 M48 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:86:y:2024:i:c:s0927538x24002117

DOI: 10.1016/j.pacfin.2024.102460

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