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The protection of user data, trade secrets, and other proprietary information held by Internet firms is of increasing concern to all sectors. In this paper, we investigate the relationship between information security governance (ISO) and stock price synchronization (SYN) in Chinese Internet firms from the perspective of information security. We find that strengthening ISO increases the occurrence of simultaneous upward and downward movement in stock price, thereby increasing SYN. Mechanism analysis demonstrates how ISO affects the firm-specific information content of stock price by acting on proprietary information. The business motivation for seeking technology and the host country’s low institutional quality can hence the positive correlation between ISO and SYN when firms conduct overseas operations. Meanwhile, in Internet firms with higher proprietary cost and weaker external governance, the positive correlation between ISO and SYN is more pronounced. Overall, this paper provides new evidence for the economic consequences of ISO from a new perspective of SYN.

Information Security Governance and Stock Price Synchronization: Evidence from ISO27001 Certification of Internet Firms