Can the establishment of a personal data protection system promote corporate innovation?

Abstract

This study investigated the impact of corporate innovation behavior resulting from the establishment of a personal data protection system (PDPS), with an emphasis on self-regulation. The findings revealed that implementing the PDPS significantly enhanced firms' innovation quantity by mitigating financial constraints and reducing risks However, concerning innovation quality, establishing a PDPS may hinder innovation novelty because of the limited availability of scarce data resources and information. Further analysis indicated that the above relationships became more pronounced when companies faced a heightened demand for personal data protection from the market, such as businesses facing a favorable economic institutional environment, businesses engaged in overseas operations, those operating in private data-sensitive industries, and those confronting cyber-attack threats. Additionally, firms' adoption of privacy-enhancing technologies resulted in a more significant effect of the PDPS on innovation quantity promotion and mitigated the inhibition of innovation quality. This study contributes to the existing research on privacy regulations and the determinants of corporate innovation. Unlike policy-event studies on personal data protection laws, this study focuses on the economic consequences of companies voluntarily implementing a PDPS and comprehensively characterizes its impact on corporate innovation behavior from both qualitative and quantitative aspects. Practical implications are also offered to the government, suggesting how to formulate relevant policies to promote a balance between enforcing policies and encouraging companies to autonomously enhance the PDPS, which is beneficial for fostering innovation in terms of quality and quantity.