Review of Financial Studies, Forthcoming
95 Pages Posted: 4 Nov 2020 Last revised: 29 Mar 2022
Date Written: March 17, 2022
Using textual analysis and comparing cybersecurity-risk disclosures of firms that were hacked to others that were not, we propose a novel firm-level measure of cybersecurity risk for all US-listed firms. We then examine whether cybersecurity risk is priced in the cross-section of stock returns. Portfolios of firms with high exposure to cybersecurity risk outperform other firms, on average, by up to 8.3% per year. At the same time, high-exposure firms perform poorly in periods of high cybersecurity risk. Reassuringly, the measure is higher in information-technology industries, correlates with characteristics linked to firms hit by cyberattacks, and predicts future cyberattacks.
Keywords: Cyber attacks, Risk Disclosures, Textual Analysis, Stock returns
JEL Classification: G14, G12, G32
Suggested Citation: Suggested Citation