IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v82y2023ics0929119923000949.html
   My bibliography  Save this article

Cybersecurity risk and corporate innovation

Author

Listed:
  • Lattanzio, Gabriele
  • Ma, Yue

Abstract

Using a text-based metric of firms' ex-ante exposure to cybersecurity risk, we document that the rise of cyber threats is redesigning corporate innovation and appropriation strategies. As firms' exposure to cybersecurity risk increases, managers' reliance on trade secrets declines, as they seek to protect their firms' intellectual capital under the umbrella provided by patent and intellectual property laws. In particular, we document that firms exposed to cyber threats file for simpler patents to accelerate their innovation cycle. This strategic adjustment is not costless, as it causes firms' returns to research and development (R&D) investments to decline significantly.

Suggested Citation

  • Lattanzio, Gabriele & Ma, Yue, 2023. "Cybersecurity risk and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923000949
    DOI: 10.1016/j.jcorpfin.2023.102445
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119923000949
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcorpfin.2023.102445?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. I. P. L. Png, 2017. "Secrecy and Patents: Theory and Evidence from the Uniform Trade Secrets Act," Strategy Science, INFORMS, vol. 2(3), pages 176-193, September.
    2. Chris Florackis & Christodoulos Louca & Roni Michaely & Michael Weber, 2023. "Cybersecurity Risk," The Review of Financial Studies, Society for Financial Studies, vol. 36(1), pages 351-407.
    3. Paul Belleflamme & Francis Bloch, 2004. "Market sharing agreements and collusive networks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 387-411, May.
    4. Lamont, Owen & Polk, Christopher & Saa-Requejo, Jesus, 2001. "Financial Constraints and Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 529-554.
    5. Crass, Dirk & Garcia Valero, Francisco & Pitton, Francesco & Rammer, Christian, 2016. "Protecting innovation through patents and trade secrets: Determinants and performance impacts for firms with a single innovation," ZEW Discussion Papers 16-061, ZEW - Leibniz Centre for European Economic Research.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mauro Caselli & Edwin Fourrier-Nicolai & Andrea Fracasso & Sergio Scicchitano, 2024. "Digital Technologies and Firms’ Employment and Training," CESifo Working Paper Series 11056, CESifo.
    2. Abukari, Kobana & Dutta, Shantanu & Li, Chen & Tang, Songlian & Zhu, Pengcheng, 2024. "Corporate communication and likelihood of data breaches," International Review of Economics & Finance, Elsevier, vol. 94(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liu, Duan & Yu, Nizhou & Wan, Hong, 2022. "Does water rights trading affect corporate investment? The role of resource allocation and risk mitigation channels," Economic Modelling, Elsevier, vol. 117(C).
    2. Robin Döttling & Tomislav Ladika & Enrico Perotti, 2016. "The (Self-)Funding of Intangibles," Tinbergen Institute Discussion Papers 16-093/IV, Tinbergen Institute.
    3. Stella Mendes Carneiro & Marcio Issao Nakane, 2020. "The perils of crossing borders: The financial constraints of Brazilian exporters during the 2009 Global Trade Collapse," Working Papers, Department of Economics 2020_01, University of São Paulo (FEA-USP).
    4. Jérôme Dollinger & Ana Mauleon & Vincent Vannetelbosch, 2024. "R &d and market sharing agreements," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(3), pages 877-922, November.
    5. Katsiaryna Bardos & Steven E. Kozlowski & Michael R. Puleo, 2021. "Entrenchment or efficiency? CEO‐to‐employee pay ratio and the cost of debt," The Financial Review, Eastern Finance Association, vol. 56(3), pages 511-533, August.
    6. Petr Korab & Jitka Pomenkova, 2017. "Credit Rationing in Greece During and After the Financial Crisis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(2), pages 119-139, April.
    7. Falavigna, Greta & Ippoliti, Roberto, 2023. "SMEs’ behavior under financial constraints: An empirical investigation on the legal environment and the substitution effect with tax arrears," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    8. Ana Mauleon & Huasheng Song & Vincent Vannetelbosch, 2010. "Networks of Free Trade Agreements among Heterogeneous Countries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 471-500, June.
    9. Al-Amri, Khalid & Davydov, Yevgeniy, 2016. "Testing the effectiveness of ERM: Evidence from operational losses," Journal of Economics and Business, Elsevier, vol. 87(C), pages 70-82.
    10. Bloch, Francis & Jackson, Matthew O., 2007. "The formation of networks with transfers among players," Journal of Economic Theory, Elsevier, vol. 133(1), pages 83-110, March.
    11. Joost Vandenbossche & Thomas Demuynck, 2013. "Network Formation with Heterogeneous Agents and Absolute Friction," Computational Economics, Springer;Society for Computational Economics, vol. 42(1), pages 23-45, June.
    12. Almaghrabi, Khadija S., 2023. "Non‐operating risk and cash holdings: Evidence from pension risk," Journal of Banking & Finance, Elsevier, vol. 152(C).
    13. Dan Hu & Eunju Lee & Bingxin Li, 2023. "Trade secrets protection and stock price crash risk," The Financial Review, Eastern Finance Association, vol. 58(2), pages 395-421, May.
    14. Dang, Viet Anh & Kim, Minjoo & Shin, Yongcheol, 2014. "Asymmetric adjustment toward optimal capital structure: Evidence from a crisis," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 226-242.
    15. Samuel Jebaraj Benjamin, 2019. "The Effect of Financial Constraints on Audit Fees," Capital Markets Review, Malaysian Finance Association, vol. 27(2), pages 59-87.
    16. Harmsen - van Hout, Marjolein J.W. & Herings, P. Jean-Jacques & Dellaert, Benedict G.C., 2013. "Communication network formation with link specificity and value transferability," European Journal of Operational Research, Elsevier, vol. 229(1), pages 199-211.
    17. Daniel Celeny & Loic Mar'echal & Evgueni Rousselot & Alain Mermoud & Mathias Humbert, 2024. "Prioritizing Investments in Cybersecurity: Empirical Evidence from an Event Study on the Determinants of Cyberattack Costs," Papers 2402.04773, arXiv.org.
    18. Quader, Syed Manzur, 2017. "Differential effect of liquidity constraints on firm growth," Review of Financial Economics, Elsevier, vol. 32(C), pages 20-29.
    19. Lingxiao Li & Bing Zhu, 2024. "REITs’ Stock Return Volatility: Property Market Risk Versus Equity Market Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 69(3), pages 452-476, October.
    20. Sofia Priazhkina & Samuel Palmer & Pablo Martín-Ramiro & Román Orús & Samuel Mugel & Vladimir Skavysh, 2024. "Digital Payments in Firm Networks: Theory of Adoption and Quantum Algorithm," Staff Working Papers 24-17, Bank of Canada.

    More about this item

    Keywords

    Cyber risk; Hacking; Corporate innovation; Patents; Trade secrets;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923000949. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.