Does the Establishment of a Personal Data Protection System Reduce Stock Price Synchronicity?

ABSTRACT

Using panel data on Chinese A‐share listed firms from 2016 to 2023, we investigate whether the establishment of a personal data protection system (PDPS) influences stock price synchronicity. We propose a precision‐cost trade‐off framework: PDPS may raise synchronicity by increasing compliance costs or lower it by improving the firm‐specific information environment. Our results show that PDPS significantly reduces stock price synchronicity. Further analyses indicate that this effect operates through three channels: lower information asymmetry driven by greater data transparency, stronger corporate governance associated with better internal controls, and enhanced social responsibility stemming from improved stakeholder relations. We also find that the effect is more pronounced among firms exposed to greater economic policy uncertainty, firms in data‐sensitive industries, and firms with higher institutional ownership. Overall, our findings highlight the role of corporate data governance in shaping capital market pricing efficiency and offer implications for data protection regulation and firms' data governance practices.