The impact of managerial myopia on cybersecurity: Evidence from data breaches

Wen Chen, Xing Li, Haibin Wu and Liandong Zhang

Journal of Banking & Finance, 2024, vol. 166, issue C

Abstract: Using a sample of U.S. firms for the period 2005–2017, we provide evidence that managerial myopic actions contribute to corporate cybersecurity risk. Specifically, we show that abnormal cuts in discretionary expenditures, our proxy for managerial myopia, are positively associated with the likelihood of data breaches. The association is largely driven by firms that appear to cut discretionary expenditures to meet short-term earnings targets. In addition, the association is stronger for firms with greater short-term equity incentives, higher earnings response coefficients, low levels of institutional block ownership, or large market shares. Finally, firms appear to increase discretionary expenditures upon the announcement of data breaches by their industry peers.

Keywords: Cybersecurity; Data breach; Real earnings management; Managerial myopia; Discretionary expenditures; Peer effect (search for similar items in EconPapers)
JEL-codes: G31 G32 G34 M15 M41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:166:y:2024:i:c:s0378426624001687

DOI: 10.1016/j.jbankfin.2024.107254

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