Do Data Privacy Laws Stimulate Entrepreneurship? Evidence from State Comprehensive Privacy Legislation

Abstract

Do comprehensive state data privacy laws hinder or stimulate business formation? While conventional wisdom suggests that privacy regulations impose compliance costs that deter entry, I find evidence of the opposite effect. Using the staggered adoption of CCPA-style privacy laws across twelve U.S.\ states between 2023 and 2025, I estimate the effect on business applications using a Callaway-Sant'Anna difference-in-differences design. Contrary to the compliance cost hypothesis, states implementing comprehensive privacy laws experienced an increase of approximately 240 high-propensity business applications per month (11.1% relative to pre-treatment means), statistically significant at the 5% level. Pre-trend tests strongly support the parallel trends assumption ($p = 0.999$). These findings suggest that privacy regulations may provide a competitive advantage by signaling consumer protection and regulatory clarity, attracting privacy-conscious entrepreneurs. The results challenge the presumption that data regulation necessarily impedes innovation and have implications for the ongoing debate over federal privacy legislation.