Cybersecurity Risk and the Cost of Debt

56 Pages Posted: 24 Jun 2019

See all articles by Amy Sheneman

Amy Sheneman

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: December 17, 2017

Abstract

A firm’s failure to protect and control confidential information is posited to affect its cost of debt. Using a sample of 199 cybersecurity breaches from 2005 to 2014, I find a positive association between a cybersecurity breach and a firm’s cost of privately placed debt. Compared with loans initiated before a breach, loans initiated after a breach have significantly higher spreads. This relation is more pronounced for firms with more transparent information environments, suggesting that cybersecurity breaches provide an informed signal to creditors about the firm’s level of cybersecurity risk. Overall, I provide evidence that cybersecurity risk has an economically significant impact on firms’ financing costs. Additionally, these findings inform the ongoing regulatory discussion regarding mandated disclosure of cybersecurity events.

Keywords: cost of debt, cybersecurity, business risk, technology

JEL Classification: M41, O31

Suggested Citation

Sheneman, Amy, Cybersecurity Risk and the Cost of Debt (December 17, 2017). Available at SSRN: https://ssrn.com/abstract=3406217 or http://dx.doi.org/10.2139/ssrn.3406217

Amy Sheneman (Contact Author)

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
149
Abstract Views
625
rank
235,214
PlumX Metrics