Cybersecurity and Executive Compensation: Can Inside Debt-Induced Risk Aversion Improve Cyber Risk Management Effectiveness?

60 Pages Posted: 30 Mar 2023

See all articles by Asligul Erkan

Asligul Erkan

East Carolina University

Trung Nguyen

Northern Kentucky University

Abstract

This study contributes to the emerging literature on the determinants and the consequences of cyberattacks by examining the impact of inside debt compensation on a firm’s likelihood of experiencing a cyberattack and on attacked firms’ cash holdings, R&D investments, and asset tangibility. We provide compelling evidence that inside debt compensation reduces the probability of experiencing a cyberattack. Furthermore, we document that high inside debt CEOs reduce their firm’s cash holdings while they increase R&D investments and asset tangibility once their firms experience a hacking incident. Our results are robust to alternative measurements of inside debt compensation and after accounting for potential sample selection and endogeneity concerns. Our findings underscore the importance of inside debt compensation as a governance mechanism that alleviates inefficiencies related to cybersecurity investments.

Keywords: Cybersecurity, agency theory, Executive compensation, Inside debt, Risk aversion

Suggested Citation

Erkan, Asligul and Nguyen, Trung, Cybersecurity and Executive Compensation: Can Inside Debt-Induced Risk Aversion Improve Cyber Risk Management Effectiveness?. Available at SSRN: https://ssrn.com/abstract=4405078 or http://dx.doi.org/10.2139/ssrn.4405078

Asligul Erkan (Contact Author)

East Carolina University ( email )

Trung Nguyen

Northern Kentucky University ( email )

Nunn Drive
Highland Heights, KY 41099
United States

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