E2026006                                                  2026-04-21

Shengqiao Lin   Xuan Wang  Lixing Li   Jiayi Hou

Abstract

How does state ownership influence corporate compliance? Existing studies offer two opposing views: state connections may invite regulatory forbearance and encourage noncompliance or may promote greater compliance due to political control. We argue that both dynamics coexist, and the net effect depends on the strength of state ties. Using China’s Cybersecurity Law as a natural experiment, we probe this debate, empirically drawing on two original datasets: (1) an app–month panel tracking the security performance of China’s top 5% most downloaded mobile apps and (2) the national business registration database covering all Chinese firms. Our difference-in-differences analyses reveal a nonlinear relationship: firms with strong state ties quickly complied with regulatory requirements by reducing security loopholes, and weakly connected firms showed lower compliance than purely private ones. Further analysis suggests regulatory compliance is driven by a dual mechanism: constraint by political control from above and reinforcement by firm-level risk management from within.

Keywords: State–business Relations, Digital Regulation, Corporate Compliance, China