Corporate Innovation in the Cyber Age

42 Pages Posted: 10 Apr 2020 Last revised: 18 May 2020

See all articles by Gabriele Lattanzio

Gabriele Lattanzio

Southern Methodist University (SMU) - Finance Department

Yue Ma

University of Oklahoma

Date Written: May 18, 2020

Abstract

We construct and validate a text-based metric capturing firms’ ex-ante exposure to cybersecurity risk, and we document that the rise of cyber threats is redesigning corporate innovation strategies. As firms’ exposure to cybersecurity risk increases, managers’ reliance on trade-secrets declines, as they seek to protect their firm’s intellectual capital under patent and intellectual property laws. Beside increasing their patenting activity, we document that firms exposed to cyber threats file for simpler patents to accelerate their innovation cycle. Finally, we show that this strategic adjustment is not costless, as it causes firms’ returns to R&D investments to decline significantly.

Keywords: Cyber risk, Cyber-attack, Corporate Innovation, Patents, Trade Secrets

JEL Classification: G14, G32, M15, M48, O32

Suggested Citation

Lattanzio, Gabriele and Ma, Yue, Corporate Innovation in the Cyber Age (May 18, 2020). Available at SSRN: https://ssrn.com/abstract=3559386 or http://dx.doi.org/10.2139/ssrn.3559386

Gabriele Lattanzio (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Yue Ma

University of Oklahoma ( email )

Norman, OK 73019-4004
United States

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