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Do firms underreport information on cyber-attacks? Evidence from capital markets

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Listed:
  • Eli Amir

    (Tel Aviv University)

  • Shai Levi

    (Tel Aviv University)

  • Tsafrir Livne

    (University of North Carolina)

Abstract

Firms should disclose information on material cyber-attacks. However, because managers have incentives to withhold negative information, and investors cannot discover most cyber-attacks independently, firms may underreport them. Using data on cyber-attacks that firms voluntarily disclosed, and those that were withheld and later discovered by sources outside the firm, we estimate the extent to which firms withhold information on cyber-attacks. We find withheld cyber-attacks are associated with a decline of approximately 3.6% in equity values in the month the attack is discovered, and disclosed attacks with a substantially lower decline of 0.7%. The evidence is consistent with managers not disclosing negative information below a certain threshold and withholding information on the more severe attacks. Using the market reactions to withheld and disclosed attacks, we estimate that managers disclose information on cyber-attacks when investors already suspect a high likelihood (40%) of an attack.

Suggested Citation

  • Eli Amir & Shai Levi & Tsafrir Livne, 2018. "Do firms underreport information on cyber-attacks? Evidence from capital markets," Review of Accounting Studies, Springer, vol. 23(3), pages 1177-1206, September.
    • Handle: RePEc:spr:reaccs:v:23:y:2018:i:3:d:10.1007_s11142-018-9452-4
    DOI: 10.1007/s11142-018-9452-4
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    References listed on IDEAS

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