Corporate Innovation in the Cyber Age
46 Pages Posted: 10 Apr 2020 Last revised: 5 Oct 2020
Date Written: Oct 02, 2020
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
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