The Role of Peer Events in Corporate Governance: Evidence From Data Breaches

The Accounting Review, Forthcoming

Posted: 19 Feb 2021

See all articles by Musaib Ashraf

Musaib Ashraf

Michigan State University - Eli Broad College of Business

Date Written: December 18, 2020

Abstract

Economic theory suggests that negative peer events can result in market-wide spillovers which help unaffected firms take real actions to enhance corporate governance. Motivated by the SEC’s concern about cybersecurity, I study the role of peer events in corporate governance using the setting of data breaches. While controlling for firm-specific time-varying unobservable characteristics, I find that peer data breaches are associated with a reduction in future internal control material weaknesses for non-breached firms. The association is robust to a changes analysis and varies cross-sectionally with breach, firm, and board characteristics. Inferences remain consistent when studying IT-related material weaknesses only. Finally, non-breached firms are more likely to have a cybersecurity expert on the top management team after a peer breach. My findings have important implications for mandatory disclosure regulation in general and, in particular, suggest that regulators can help reduce market-wide exposure to cyber risk by facilitating disclosure of cyber incidents.

Keywords: peer events, corporate governance, internal controls, information technology, cybersecurity, information spillover, data breaches

JEL Classification: G34, M15

Suggested Citation

Ashraf, Musaib, The Role of Peer Events in Corporate Governance: Evidence From Data Breaches (December 18, 2020). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3751622

Musaib Ashraf (Contact Author)

Michigan State University - Eli Broad College of Business ( email )

632 Bogue St
East Lansing, MI 48824
United States

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