Data Privacy Gone Wrong: The Financial Fallout of App Misconduct

Abstract

We investigate the consequences of data privacy misconduct by mobile apps under China’s regulatory framework. Public disclosure of unlawful practices causes negative abnormal returns and increased borrowing costs, particularly severe for those with prior violations, operating in competitive sectors, under financial constraints, or with limited digital innovation. Market reactions are exacerbated by high media attention and competitive, data-driven industries. The rise in debt costs is driven by increased operational risk-taking and reputational damage. Significant negative spillover effects on industry peers indicate broader market implications. These findings underscore the financial impact of data privacy misconduct, emphasizing the importance of regulatory compliance.