City Hall Has Been Hacked! The Financial Costs of Lax Cybersecurity

47 Pages Posted: 2 Jun 2023 Last revised: 13 Oct 2023

See all articles by Filippo Curti

Filippo Curti

Federal Reserve Bank of Richmond - Quantitative Supervision & Research

Ivan Ivanov

Federal Reserve Bank of Chicago

Marco Macchiavelli

Isenberg School of Management

Tom Zimmermann

University of Cologne

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

Curti, Filippo and Ivanov, Ivan and Macchiavelli, Marco and Zimmermann, Tom, City Hall Has Been Hacked! The Financial Costs of Lax Cybersecurity (May 31, 2023). Available at SSRN: https://ssrn.com/abstract=4465071 or http://dx.doi.org/10.2139/ssrn.4465071

Filippo Curti

Federal Reserve Bank of Richmond - Quantitative Supervision & Research ( email )

530 E Trade St
Charlotte, NC 28202
United States

Ivan Ivanov

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://ivantivanov.com

Marco Macchiavelli (Contact Author)

Isenberg School of Management ( email )

Amherst, MA 01003
United States

Tom Zimmermann

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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