Data Security and Merger Waves

Abstract

We examine whether data security affects the merger waves in the era of big data. Exploiting the staggered adoption of laws that require mandatory disclosure of data breaches across states, we find a significant increase in the number and values of acquisitions of a state’s data-intensive companies after the state enacted the laws. The effects are stronger among industries that are more competitive and technology intensive. Acquirers offer a higher premium for data-intensive targets in states that have adopted the laws. These results suggest that the data breach laws facilitate M&A deals by mitigating targets’ data lemon problem.