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The determinants of cybersecurity risk disclosure in firms’ financial reporting: Empirical evidence

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  • Masoud, Najeb
  • Al-Utaibi, Ghassan

Abstract

This paper examines the relationship between cybersecurity risk disclosure and financial reporting deficiencies. Using a difference-in-difference approach based on a large, matched sample of breached and non-breached US firms for the period 2006 to 2016, a differential effect is seen between cybersecurity risk disclosures in pre- and post-Breach financial reporting related to cybersecurity incidents. The association between the cybersecurity risk disclosure and subsequent reported financial deficiencies is positive and significant, providing some evidence for regulators that more firm-specific disclosure may provide increased audit quality, to which the auditor responds by increasing audit effort. The empirical findings suggest that firms with prior cybersecurity risk disclosures are more likely to experience financial reporting deficiencies. The results obtained are robust to a variety of sensitivity checks.

Suggested Citation

  • Masoud, Najeb & Al-Utaibi, Ghassan, 2022. "The determinants of cybersecurity risk disclosure in firms’ financial reporting: Empirical evidence," Research in Economics, Elsevier, vol. 76(2), pages 131-140.
    • Handle: RePEc:eee:reecon:v:76:y:2022:i:2:p:131-140
    DOI: 10.1016/j.rie.2022.07.001
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    More about this item

    Keywords

    Cybersecurity; Cybersecurity risk disclosure; Financial reporting; Data breaches;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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