The impact of country institutional factors on firm disclosure: Cybersecurity disclosures in Chinese cross-listed firms |
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Institution: | 1. University of Chicago, United States;2. University of New Mexico, United States;3. University of Melbourne, Australia;1. Southern Illinois University Carbondale, United States;2. DePaul University, United States;3. Louisiana Tech University, United States;1. University of Nebraska, Lincoln, USA;2. DePaul University, USA;3. Texas A&M University, USA;1. Lingnan University, Hong Kong;2. The Hong Kong Polytechnic University, Hong Kong;1. Hanyang University, Republic of Korea;2. Seoul National University, Republic of Korea;1. Memorial University of Newfoundland, Canada;2. Stony Brook University, USA |
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Abstract: | This paper explores differences in qualitative disclosures between Chinese firms that cross-list in the US and their US domestic counterparts that reflect firm-level cybersecurity awareness. Consistent with the strong regulatory framework in China externalizing cybersecurity and thus reducing the need to disclose individual company cybersecurity awareness, we find that relative to their US domestic counterparts, Chinese cross-listed firms in the US provide less cybersecurity disclosure. However, market valuation of these cybersecurity disclosures is higher for Chinese cross-listed firms, suggesting that the market more favorably views Chinese firm disclosures that communicate a greater level of internalized cybersecurity awareness. We also explore the effect of institutional setting on market valuation of cybersecurity awareness through an event study surrounding the arrest of Huawei’s CFO. This event highlighted cybersecurity weaknesses at Huawei, potentially more generally challenging the effectiveness of Chinese cybersecurity policies. We find a negative stock market reaction to the event, but only for our Chinese sample. These results provide evidence that the market’s view of company cybersecurity awareness is sensitive to changes in perceptions of companies’ institutional setting. |
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