N°23-86: Data Innovation Complementarity and Firm Growth

Data security is often viewed as a defensive cost. But in today’s data-driven economy, can it also create value? We propose a novel measure of ''data innovation complementarity'', capturing the extent to which firms have structurally integrated data-security expertise into their broader innovation processes. We show that such integration unlocks cross-domain knowledge spillovers, fueling firm-wide innovation and growth. Exploiting U.S. Data Breach Notification Laws as a quasi-exogenous increase in the perceived importance of data security, we find that only high-complementarity firms realize these gains. A calibrated real-options model shows that value creation arises only above a complementarity threshold, turning defense into opportunity.