Trade Secrets and Cybersecurity Breaches

57 Pages Posted: 16 Aug 2017 Last revised: 17 Jun 2018

See all articles by Michael Ettredge

Michael Ettredge

University of Kansas - Accounting and Information Systems Area

Feng Guo

Iowa State University - Department of Accounting and Finance

Yijun Li

University of Kansas, School of Business, Accounting and Information Systems Area, Students

Date Written: June 8, 2018

Abstract

We study the association between firms’ disclosures in Forms 10-K of the existence of trade secrets, and cyber theft of corporate data (which we refer to as “Breaches”). Prior academic research explaining occurrence of Breaches is scarce, and no prior study has focused specifically on Breaches that likely target trade secrets. We provide such evidence, and our use of Form 10-K contents related to trade secrets is a first step toward determining whether corporations actually attract Breach activity through their public disclosures. We find that firms mentioning the existence of trade secrets have a significantly higher subsequent probability of being Breached relative to firms that do not do so. Our results are stronger among younger firms, firms with fewer employees, and firms operating in less concentrated industries. By conducting a battery of additional tests, we attempt to go beyond merely establishing correlations to provide evidence whether such proprietary information can actually attract cyberattacks. Specifically, our results are robust to additional control variables, an instrumental variable approach, firm fixed effects, and a propensity score matching technique.

Keywords: Cyber attack, hackers, IT security, trade secrets, disclosure, breaches

JEL Classification: M15, M41, M42

Suggested Citation

Ettredge, Michael L. and Guo, Feng and Li, Yijun, Trade Secrets and Cybersecurity Breaches (June 8, 2018). Journal of Accounting and Public Policy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3018553 or http://dx.doi.org/10.2139/ssrn.3018553

Michael L. Ettredge (Contact Author)

University of Kansas - Accounting and Information Systems Area ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-7537 (Phone)
785-864-5328 (Fax)

Feng Guo

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Yijun Li

University of Kansas, School of Business, Accounting and Information Systems Area, Students

1654 Naismith Dr.
Lawrence, KS 66045
United States

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