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With Pantelis Koutroumpis and Taheya Tarannum
[PAPER]
Data breaches account for a significant share of cyber attacks. While they severely impact customers, who lose valuable personal data, they often have a limited effect on the operations of data holding companies. This might lead firms to underinvest in cybersecurity. Does stronger data protection alleviate the effects of these misaligned incentives? We address this question by examining the link between firms' cybersecurity hirings and stronger data protection laws and enforcement. We study two institutional changes that affect the data protection enforcement by the Information Commissioner's Office (ICO) in the UK. The first is the removal of the requirement to prove substantial damage and distress in 2015 that gives greater discretion to the ICO to issue monetary penalties. The second is the enactment of the Data Protection Act 2018, which significantly raises the ceiling of monetary penalties. To examine the effects of these legal changes, we assemble a novel dataset from ICO activity logs that entails more than 5,000 supervisory actions. We construct an index for exposure to ICO enforcement at the three-digit industry level. Combining the sectoral variation with the timing of the legal changes, our paper produces two novel insights. First, we evaluate the effectiveness of two policy instruments, namely frequent monetary penalties and mega-fines. We find that both instruments are effective in increasing investment in cyber skills. While the impact of mega-fines is substantially stronger, it is less homogeneous across firms with different cash balances, ages, and digital technology profiles. Second, despite the effectiveness of stronger data protection laws and enforcement, they have a negative impact on firm dynamics, reducing the entry rate up to 1.4 percentage points and increasing the exit rate by up to 0.9 percentage points.
Presented at : AEA (San Antonio 2024), EALE (Prague 2023), EEA-ESEM (Barcelona 2023), SIOE (Frankfurt 2023), IIOC (Washington, D.C. 2023), Digital Economy Workshop (Lausanne, 2023)
Note: The figure highlights the divergence of cybersecurity hiring in the UK between industries with high and low exposure to data protection enforcement after two important legal changes. First, the removal of the requirement to prove substantial damage and distress in 2015 that gives greater discretion to the the Information Commissioner's Office (ICO) to issue monetary penalties. Second, the enactment of the Data Protection Act 2018, which significantly raises the ceiling of monetary penalties from £500,000 for to £17.5 million (or 4% of its annual global turnover, whichever is higher).
Fiber Broadband, Geography of Work, and Digital Premium Divide: Evidence from Housing Transactions
Fiber Broadband, Geography of Work, and Digital Premium Divide: Evidence from Housing Transactions
With Pantelis Koutroumpis and Taheya Tarannum
[PAPER]
Using the universe of housing transactions in England and Wales between 2008 and 2017, we measure the perceived value of fiber broadband to homebuyers. We exploit the discontinuity across the boundary of areas that were fiber enabled in different years. We find a house price premium of 0.7%, which increases to 1.8% for London. Examining the neighborhood characteristics shows that the strongest response comes from neighborhoods with a higher share of skilled residents, especially those engaged in digital occupations. Neighborhoods with a higher share of the work-from-home population exhibit a larger premium, highlighting the productive use of high-speed home broadband.
Presented at: European Economic Association meeting (Barcelona 2023), The North American Meeting of the Urban Economics Association (Washington, D.C. 2022), The European meeting of the Urban Economics Association (London 2022),
Note: This figure highlights how the roll-out of FTTC infrastructure changed the geography of access to HighSpeed broadband. Purple dots show the distribution points of FTTC broadband (cabinets). The red dot shows the location of the local exchange.
With Pantelis Koutroumpis
[PAPER]
We study how longer bankruptcy trials affect the size, structure, and allocation of corporate capital. Exploiting a legal reform that reorganised the judicial districts in Italy, we provide three novel insights into the real and allocational effects of legal institutions. First, poor enforcement of financial contracts leads firms to under-allocate capital in intangible assets. Second, it aggravates misallocation by preventing the optimal allocation of physical and intangible assets towards firms with high capital return. Third, in addition to court delays, our findings shed light on the importance of distance from the court as another source of organizational frictions in bankruptcy.
Presented at : Western Finance Association meeting (WFA 2021), Financial Intermediation Research Society (FIRS 2021), European Economic Association meeting (EEA 2021), Midwest Finance Association meeting (MFA 2021), Spring Meeting of Young Economists (SMYE 2021), Australasian Finance and Banking Conference 2020
Previously circulated as "Do Court Delays Distort Capital Formation?"
[PAPER]
Abstract: Using a novel data set on lending technique of banks in three MENA economies and matching data on the location of firms and bank branches, I study the impact of local lending environment that prevails in the vicinity of each firm. I find that firms face tighter credit constraint when they are located in areas in which banks that view themselves as collateral lender have a stronger presence. I find this negative effect is stronger for the innovative firms and in areas with lower quality of court enforcement. To explain this result, I developed a model of adverse selection with heterogeneous borrowers across risk and return dimensions. The model sheds lights on the new channel through that collateral could increase the cost of external finance. The paper shows that collateral spread of external finance could make the financing of high-risk high-return projects suboptimally costly. This, in particular, could discourage innovative firms to apply for a bank loan.
Presented at: Royal Economic Society meeting in Belfast (RES 2021), CESifo Workshop on Banking and Institutions in Munich 2019, European Economic Association meeting (EEA 2018), French Economic Association in Paris 2018, 6th joint research workshop between Ecole d’Economie de la Sorbonne and Cairo University 2018, Applied Economics Lunch Seminar at Paris School of Economics 2018;
With Frank Betz and Christoph T. Weiss
[PAPER]
Abstract: We explore structural and cyclical determinants of financial informality among formal firms in Egypt. Using panel data, we find that firms that started operating in the informal sector before registering are less likely to engage with the banking system. But firms with more educated and more experienced managers are more likely to open a checking account, often a prerequisite to obtain external finance. Exploiting data on the location of firms and bank branches, we show that firms located close to banks that invest more heavily in government debt are more likely to be discouraged from applying for a bank loan due to crowding out of the private sector.
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