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The impact of managerial myopia on cybersecurity: Evidence from data breaches

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  • Chen, Wen
  • Li, Xing
  • Wu, Haibin
  • Zhang, Liandong

Abstract

Using a sample of U.S. firms for the period 2005–2017, we provide evidence that managerial myopic actions contribute to corporate cybersecurity risk. Specifically, we show that abnormal cuts in discretionary expenditures, our proxy for managerial myopia, are positively associated with the likelihood of data breaches. The association is largely driven by firms that appear to cut discretionary expenditures to meet short-term earnings targets. In addition, the association is stronger for firms with greater short-term equity incentives, higher earnings response coefficients, low levels of institutional block ownership, or large market shares. Finally, firms appear to increase discretionary expenditures upon the announcement of data breaches by their industry peers.

Suggested Citation

  • Chen, Wen & Li, Xing & Wu, Haibin & Zhang, Liandong, 2024. "The impact of managerial myopia on cybersecurity: Evidence from data breaches," Journal of Banking & Finance, Elsevier, vol. 166(C).
    • Handle: RePEc:eee:jbfina:v:166:y:2024:i:c:s0378426624001687
    DOI: 10.1016/j.jbankfin.2024.107254
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    More about this item

    Keywords

    Cybersecurity; Data breach; Real earnings management; Managerial myopia; Discretionary expenditures; Peer effect;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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