Corporate Innovation in the Cyber Age

46 Pages Posted: 10 Apr 2020 Last revised: 5 Oct 2020

Date Written: Oct 02, 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 (Oct 02, 2020). SMU Cox School of Business Research Paper No. 20-04, Available at SSRN: https://ssrn.com/abstract=3559386 or http://dx.doi.org/10.2139/ssrn.3559386

Gabriele Lattanzio (Contact Author)

Monash University ( email )

Melbourne
Australia

HOME PAGE: http://www.gabrielelattanzio.com

Yue Ma

University of Oklahoma ( email )

Norman, OK 73019-4004
United States

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