Cybersecurity Awareness and Market Valuations

45 Pages Posted: 30 May 2018 Last revised: 17 Jul 2019

See all articles by Henk Berkman

Henk Berkman

University of Auckland - Business School

Jonathan Jona

Tulane University, A.B. Freeman School of Business, Finance & Economics, Students

Gladys Lee

University of Melbourne

Naomi S. Soderstrom

University of Melbourne

Date Written: August 28, 2018

Abstract

This paper introduces a measure of firm-specific cybersecurity awareness that can be used in empirical research exploring cyber-related issues facing corporations. It extends and updates Gordon, Loeb, and Sohail (2010), who develop an indicator capturing the existence of disclosures related to “information security,” and show a positive association between market valuation and their measure. Since publication of their paper, cyber-related events have become more frequent and salient, and disclosure of cybersecurity issues has become more extensive. Increased disclosure is largely due to a 2011 requirement by the Securities and Exchange Commission, which provides guidance for disclosure of cyber-related issues in 10-K filings. Based upon this mandatory disclosure, we develop a new measure that captures the extent and relevance of cyber disclosures and show that the market positively values cybersecurity awareness. We also show that a more negative tone in cyber disclosures is associated with lower market values. Our results are robust to inclusion of measures of IT governance and controlling for the firm’s overall disclosure characteristics.

Keywords: Cybersecurity, Cybersecurity awareness; Cyber breaches; Cyber risks; IT governance; Market valuations; Intangible assets

Suggested Citation

Berkman, Henk and Jona, Jonathan and Lee, Gladys and Soderstrom, Naomi S., Cybersecurity Awareness and Market Valuations (August 28, 2018). Journal of Accounting and Public Policy, Vol. 37, 2018. Available at SSRN: https://ssrn.com/abstract=3180538 or http://dx.doi.org/10.2139/ssrn.3180538

Henk Berkman

University of Auckland - Business School ( email )

Private Bag 92019
Room: 577
Auckland
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

Jonathan Jona (Contact Author)

Tulane University, A.B. Freeman School of Business, Finance & Economics, Students ( email )

7 McAlister Drive
New Orleans, LA
United States

Gladys Lee

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Naomi S. Soderstrom

University of Melbourne ( email )

Victoria
Melbourne, 3010
Australia

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