Market pressure or regulatory pressure? U.S. small bank pre-emptive IT investment to data privacy regulation

We assess small banks' responses to announcements of state-level proposals of Privacy Protection Acts (PPAs). Employing a Difference-in-Differences framework, we uncover the proactive actions taken by U.S. small banks in anticipation of these proposals. Our findings reveal that the announcement of PPA proposals leads to a 35.46% increase in IT investment by U.S. small banks, primarily driven by market pressure, with regulatory pressure playing a more limited role. Particularly, evidence suggests that banks with greater competitive threats from their rivals are motivated to enhance their IT investments due to market pressures. However, our research also finds that this surge in IT investment does not immediately translate into benefits for small banks.