City Hall Has Been Hacked! The Financial Costs of Lax Cybersecurity
56 Pages Posted: 2 Jun 2023 Last revised: 6 Dec 2024
Date Written: May 31, 2023
Abstract
State and local governments are attractive cybercrime targets because of inadequate cybersecurity and ample access to sensitive information. We show that external data breaches translate to higher financing costs for governments, including negative abnormal bond returns in the secondary market and higher offering yields and bond pricing uncertainty in the primary market. We also find that governments increase total spending around cyberattacks, suggesting higher operating costs as the likely channel behind the spike in financing costs. Exploiting state-level variation in the timing of both breach notification and data security laws, we show that they have not significantly strengthened cybersecurity.
Keywords: Cyberattacks, financing costs, municipal debt, cybersecurity regulation.
JEL Classification: H72, H74, G38.
Suggested Citation: Suggested Citation