How does the cybersecurity law affect corporate investment

Abstract

Using data from A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2000 to 2022, this study employs a difference-in-differences model to analyze the impact of the 2016 Cybersecurity Law of the People's Republic of China on corporate investment. We also examine the mediating roles of financing constraints and corporate risk in this relationship. Findings demonstrate that the implementation of the Cybersecurity Law significantly reduced corporate investments, primarily by increasing financing constraints and elevating firms' overall risks. Heterogeneity analysis reveals that firms with lower ownership concentration, a lack of political connections, and lower audit quality experienced more significant investment declines following the enactment of the Cybersecurity Law. This study provides a new perspective on the impact of cybersecurity regulations on corporate practices and offers a theoretical basis for relevant policymaking.