Hacking Corporate Reputations
37 Pages Posted: 19 Mar 2018 Last revised: 17 Dec 2018
Date Written: March 16, 2018
We exploit unexpected corporate data breaches to study how firms respond to negative reputation events. Data breaches negatively affect firm profitability and the price-to-earnings ratio for years following the event. However, consistent with a de- cline in corporate reputation reducing the value of a firm’s pre-existing corporate social responsibility (CSR) investments, we find that firms significantly increase their investment in CSR by an average of 0.4-0.5 standard deviations in the years following an unexpected breach. Our paper represents the first empirical study to directly link CSR to corporate reputations and presents the first evidence in the literature that firms actively invest in CSR as the result of a negative reputation shock.
Keywords: Corporate Social Responsibility, CSR, Corporate Reputation, Cyberattack, Data Breach
JEL Classification: G32, G31, G14, M14, D22, D23, L21, L25, G38, G39
Suggested Citation: Suggested Citation