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Regulatory Cybercrime: A Hacking-Based Mechanism to Regulate and Supervise Corporate Cyber Governance?

43 Pages Posted: 25 Jan 2017  

Shaen Corbet

Dublin City University Business School

Constantin Gurdgiev

Trinity College, Dublin; Middlebury Institute of International Studies at Monterey (MIIS)

Date Written: January 23, 2017

Abstract

This paper examines the impact of cybercrime and hacking events on equity market volatility across publicly traded corporations. The volatility influence of these cybercrime events is shown to be dependent on the number of clients exposed across all sectors and the type of the cyber security breach event, with significantly large volatility effects presented for companies who find themselves exposed to cybercrime in the form of hacking. Evidence is presented to suggest that corporations with large data breaches are punished substantially in the form of stock market volatility and significantly reduced abnormal stock returns. Companies with lower levels of market capitalisation are found to be most susceptible. In an environment where corporate data protection should be paramount, minor breaches appear to be relatively unpunished by the stock market. We also show that there is a growing importance in the contagion channel from cyber security breaches to markets volatility. Overall, our results support the proposition that acting in a controlled capacity from within a ring-fenced incentives system, hackers may in fact provide the appropriate mechanism for discovery and deterrence of weak corporate cyber security practices. This mechanism can help alleviate the systemic weaknesses in the existent mechanisms for cyber security oversight and enforcement.

Keywords: Cyber security, risk, financial risk, banking, monetary and financial institutions, FinTech, digital security, cyber crime, systemic risk, contagion, financial markets, regulation, white knights, white hats, financial supervision, ESG risk

JEL Classification: E44, F36, F65, G01, G15, G18, G21, G22, G23, G28, G32, L86, O33

Suggested Citation

Corbet, Shaen and Gurdgiev, Constantin, Regulatory Cybercrime: A Hacking-Based Mechanism to Regulate and Supervise Corporate Cyber Governance? (January 23, 2017). Available at SSRN: https://ssrn.com/abstract=2904749 or http://dx.doi.org/10.2139/ssrn.2904749

Shaen Corbet

Dublin City University Business School ( email )

Dublin 9
Ireland

Constantin Gurdgiev (Contact Author)

Trinity College, Dublin ( email )

Trinity College
Dublin 2

Middlebury Institute of International Studies at Monterey (MIIS) ( email )

460 Pierce St
Monterey, CA 93940
United States

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