Insider Trading and Disclosure: The Case of Cyberattacks

37 Pages Posted: 16 Apr 2019

See all articles by Eli Amir

Eli Amir

Tel Aviv University

Shai Levi

Tel Aviv University

Tsafrir Livne

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Date Written: March 7, 2019

Abstract

We examine the relation between insider trading and corporate disclosure of cyberattacks. We distinguish between companies that voluntarily disclosed cyberattacks and those that withheld information on the incidents, and parties outside the attacked company later discovered the incident. We find insiders sell stocks in cases their firm withholds information on the cyberattack from investors. However, in firms that voluntarily disclosed information about the attack, we find insiders are less likely to sell shares when information is still private. We also find that managers are less likely to withhold and sell stocks in states that require companies to disclose data breaches to the state attorney general. The requirement to disclose a breach to the state attorney marks the breach as a significant event, on which insiders are less likely to trade before disclosure because of higher litigation risk. When disclosure requirements are less strict and disclosure is virtually voluntary, insiders trade after withholding information on the cyberattack. The results demonstrate the relation between disclosure and insider trading, and in particular show managers are more (less) likely to trade on private information that they know the company will withhold (disclose).

Keywords: insider trading, disclosure, cyberattacks, data breaches

Suggested Citation

Amir, Eli and Levi, Shai and Livne, Tsafrir, Insider Trading and Disclosure: The Case of Cyberattacks (March 7, 2019). Available at SSRN: https://ssrn.com/abstract=3355978 or http://dx.doi.org/10.2139/ssrn.3355978

Eli Amir

Tel Aviv University ( email )

312 Recanati Bldg.
69978 Tel Aviv
Israel
+972 3 640-8510 (Phone)
+972 3 640-7738 (Fax)

Shai Levi (Contact Author)

Tel Aviv University ( email )

Tel Aviv, 69978
Israel

Tsafrir Livne

University of North Carolina (UNC) at Chapel Hill - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

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