Corporate Reputation, Debt Contracting, and Bank Loans: Evidence from Data Breaches

Binfarè, Matteo

doi:10.2139/ssrn.3411553

Cited by 3 publications

(2 citation statements)

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“…Several studies examine the determinants, consequences and possible resolutions (Aldasoro et al, 2020; Crosignani et al, 2020; Ettredge et al, 2018; Higgs et al, 2016). For instance, firms incur high expenses related to disrupted ordinary operations and reduction of revenue after cyberattacks (Deloitte, 2016); they also experience reduced competitiveness in the labour market (Nordlund, 2018), negative stock market reactions (Jiang et al, 2020; Kamiya et al, 2021), and increased financing costs (Binfarè, 2020). Romanosky (2016) estimates a loss of 11% of a firm's total customers after a data breach.…”

Section: Institutional Background and Hypothesis Developmentmentioning

confidence: 99%

Ordeal by innocence in the big‐data era: Intended data breach disclosure, unintended real activities manipulation

Liu

2023

Euro Fin Management

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We demonstrate an unintended consequence of mandatory disclosure of data breaches: the distortion of firms' real business activities. Employing the staggered adoption of data breach disclosure laws across various US states, we show that mandatory disclosure exacerbates CEOs' real earnings manipulation through production and operation management, which is more pronounced for firms of which the outbreak of data breaches is more of a concern and under stronger short‐term market pressure. The law adoption is associated with higher stock price crash risk and fewer patenting activities. Our findings reveal side effects of certain customer‐protection regulations in view of dampened information quality.

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Section: Institutional Background and Hypothesis Developmentmentioning

confidence: 99%

Ordeal by innocence in the big‐data era: Intended data breach disclosure, unintended real activities manipulation

Liu

2023

Euro Fin Management

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“…Credit rating agencies and CDS investors may reassess the probability of future data breaches, which could affect the credit risk assessment of breached firms. In Table 2.9, we follow Binfare (2019) and use probit regressions to examine the likelihood of a future data breach, conditional on a data breach occurring in year t or t-1. The dependent variable is an indicator variable that takes a value of one if a firm experiences a data breach in year t + 1, zero otherwise.…”

Section: Conditional Likelihood Of Additional Data Breachesmentioning

confidence: 99%

Three Essays on Corporate Financial Constraints

Boasiako¹

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This thesis is composed of three self-contained empirical essays in corporate finance, with the first two exploring the financial policy and credit risk implications of data breaches, and the third examining whether financing influences the sensitivity of cash and investment to asset tangibility. In the first essay, we contribute to the growing debate on cybersecurity risks and how firms can insulate themselves, at least partially, from the adverse effects of data breach risks. Specifically, we examine the effects of data breach disclosure laws and the subsequent disclosure of data breaches on the cash policies of corporations in the United States (U.S.). Exploiting a series of natural experiments regarding staggered state-level data breach disclosure laws, we find that the passage of mandatory disclosure laws leads to an increase in cash holdings. Our finding suggests that mandatory data breach disclosure laws increase the ex ante risks related to data breaches, hence, firms hold on to more cash as a precautionary motive. Further, we find firms that suffer data breaches adjust their financial policies by holding more cash as well as decreasing external finance and investment. The second essay examines the impact of data breaches on firm credit risk. Using firm-level credit ratings and credit default swap (CDS) spreads to proxy for credit risk, we find that data breaches lead to increases in firm credit risk. Firms exposed to data breaches are more likely to experience credit rating downgrades and an increase in the CDS spread of traded bonds. Also, firms who suffer data breaches report lower sales and ROA, experience an increase in financial distress, and conditional on a data breach incident, the likelihood of a future data breach increases. Lastly, these effects are magnified for firms with low-interest coverage ratios. In the third essay, using the financial deregulation of seasoned equity issuance in the U.S. as an exogenous shock to access to equity markets, I investigate the influence of financing on the sensitivity of cash and investment to asset tangibility. I show that financing dampens the sensitivity of cash and investment to asset tangibility and promotes investment and firm growth. This provides evidence that public firms even in well-developed financial markets such as the U.S., benefit from financial deregulation that removes barriers to external equity financing, shedding light on the role of financial markets in fostering growth.

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Regulating data: Evidence from corporate America

Motoki,

Pinto

2024

Business Fin & Account

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Using the enforcement of the General Data Protection Regulation (GDPR) as our empirical setting, we examine how stricter data privacy and data protection requirements affect shareholder wealth, firms’ investment decisions, and data breaches. Consistent with consumer privacy negatively affecting firms, we find that U.S. firms exposed to the GDPR lose 0.7%–1.1% in market value relative to unexposed firms in the week in which the regulation became enforceable. We find that the decrease in market value is partially attributable to a decrease in sales growth. GDPR‐exposed firms increase their investment above that of control firms and become less likely to report a data breach post‐regulation. The decrease in data breach likelihood is statistically and economically significant, resulting in up to 34 million records not being leaked, which costs between $205 million and $561 million to firms in breach mitigation expenses per year. The results of this study should be of interest to academics and regulators worldwide by examining the costs and benefits of regulating data.

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Corporate Reputation, Debt Contracting, and Bank Loans: Evidence from Data Breaches

Cited by 3 publications

References 0 publications

Ordeal by innocence in the big‐data era: Intended data breach disclosure, unintended real activities manipulation

Ordeal by innocence in the big‐data era: Intended data breach disclosure, unintended real activities manipulation

Three Essays on Corporate Financial Constraints

Regulating data: Evidence from corporate America

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