Do firms underreport information on cyber-attacks? Evidence from capital markets

Eli Amir (), Shai Levi () and Tsafrir Livne
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Eli Amir: Tel Aviv University
Shai Levi: Tel Aviv University

Review of Accounting Studies, 2018, vol. 23, issue 3, No 11, 1177-1206

Abstract: Abstract Firms should disclose information on material cyber-attacks. However, because managers have incentives to withhold negative information, and investors cannot discover most cyber-attacks independently, firms may underreport them. Using data on cyber-attacks that firms voluntarily disclosed, and those that were withheld and later discovered by sources outside the firm, we estimate the extent to which firms withhold information on cyber-attacks. We find withheld cyber-attacks are associated with a decline of approximately 3.6% in equity values in the month the attack is discovered, and disclosed attacks with a substantially lower decline of 0.7%. The evidence is consistent with managers not disclosing negative information below a certain threshold and withholding information on the more severe attacks. Using the market reactions to withheld and disclosed attacks, we estimate that managers disclose information on cyber-attacks when investors already suspect a high likelihood (40%) of an attack.

Keywords: Cyber attacks; Data breaches; Disclosure; M41; G14 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (37)

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DOI: 10.1007/s11142-018-9452-4

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