Do Banks Price Firms’ Data Breaches?

The Accounting Review 1 May 2021; 96 (3): 261–286. doi: https://doi.org/10.2308/TAR-2018-0643

Posted: 12 May 2022

See all articles by Henry He Huang

Henry He Huang

Yeshiva University - Sy Syms School of Business

Chong Wang

The Hong Kong Polytechnic University

Date Written: June 2, 2021

Abstract

This paper studies the financial consequences of a reported data breach for bank loan terms. Using a staggered difference-in-differences approach with treatment and control samples matched by data breach propensity, we find that firms that have reported data breaches face higher loan spreads and their loans are more likely to require collateral and demand more covenants. The effects are more pronounced when the data breach involves criminal activities or the loss of a large number of records, or when the breached firm belongs to certain industries or has a high IT reputation. Moreover, using the introduction of state mandatory data breach notification laws as an exogenous shock, we find that the negative effect of data breaches on bank loan terms is more significant after these laws took effect. Our evidence also suggests that breached firms that take more remedial actions following the breach incident receive less unfavorable loan terms.

Keywords: Data breaches; bank loan terms; loan spreads; collateral; covenants

JEL Classification: G10, G12

Suggested Citation

Huang, Henry and Wang, Chong, Do Banks Price Firms’ Data Breaches? (June 2, 2021). The Accounting Review 1 May 2021; 96 (3): 261–286. doi: https://doi.org/10.2308/TAR-2018-0643, Available at SSRN: https://ssrn.com/abstract=3860305

Henry Huang (Contact Author)

Yeshiva University - Sy Syms School of Business ( email )

New York, NY 10033
United States

Chong Wang

The Hong Kong Polytechnic University ( email )

Hong Kong
Hong Kong

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