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Market pressure or regulatory pressure? U.S. small bank pre-emptive IT investment to data privacy regulation

Author

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  • Huang, Jin
  • Lin, Xiangyu
  • Shi, Xiaomeng
  • Zhang, S. Sarah

Abstract

We assess small banks' responses to announcements of state-level proposals of Privacy Protection Acts (PPAs). Employing a Difference-in-Differences framework, we uncover the proactive actions taken by U.S. small banks in anticipation of these proposals. Our findings reveal that the announcement of PPA proposals leads to a 35.46% increase in IT investment by U.S. small banks, primarily driven by market pressure, with regulatory pressure playing a more limited role. Particularly, evidence suggests that banks with greater competitive threats from their rivals are motivated to enhance their IT investments due to market pressures. However, our research also finds that this surge in IT investment does not immediately translate into benefits for small banks.

Suggested Citation

  • Huang, Jin & Lin, Xiangyu & Shi, Xiaomeng & Zhang, S. Sarah, 2025. "Market pressure or regulatory pressure? U.S. small bank pre-emptive IT investment to data privacy regulation," Journal of Corporate Finance, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:corfin:v:95:y:2025:i:c:s0929119925001312
    DOI: 10.1016/j.jcorpfin.2025.102863
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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