Do Firms Underreport Information on Cyber-Attacks? Evidence from Capital Markets
52 Pages Posted: 12 Mar 2018 Last revised: 22 Jun 2018
Date Written: June 7, 2018
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
JEL Classification: G41, G14
Suggested Citation: Suggested Citation