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Cybersecurity Risk

Author

Listed:
  • Chris Florakis

    (University of Liverpool - Management School)

  • Christodoulos Louca

    (Cyprus University of Technology - Department of Commerce, Finance and Shipping)

  • Roni Michaely

    (University of Geneva - Geneva Finance Research Institute)

  • Michael Weber

    (University of Chicago - Booth School of Business; NBER)

Abstract

We develop a novel firm-level measure of cybersecurity risk using textual analysis of cybersecurity-risk disclosures in corporate filings. The measure successfully identifies firms extensively discussing cybersecurity risk in their 10-K, displays intuitive relations with quantitative measures of cybersecurity risk disclosure language, exhibits a positive trend over time, is more prevalent among industries relying more on information technology systems, correlates with several characteristics linked to firms hit by cyber attacks and, importantly, predicts future cyber attacks. Stocks with high exposure to cybersecurity risk exhibit high expected returns on average, but they perform poorly in periods of increasing attention to cybersecurity risk.

Suggested Citation

  • Chris Florakis & Christodoulos Louca & Roni Michaely & Michael Weber, 2020. "Cybersecurity Risk," Working Papers 2020-178, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2020-178
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    References listed on IDEAS

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    Cited by:

    1. Martin Boyer & Martin Eling, 2023. "New advances on cyber risk and cyber insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(2), pages 267-274, April.
    2. Lattanzio, Gabriele & Ma, Yue, 2023. "Cybersecurity risk and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 82(C).
    3. Chang, Jin-Wook & Jayachandran, Kartik & Ramírez, Carlos A. & Tintera, Ali, 2024. "On the anatomy of cyberattacks," Economics Letters, Elsevier, vol. 238(C).
    4. Daniel Celeny & Loic Mar'echal, 2024. "Cyber risk and the cross-section of stock returns," Papers 2402.04775, arXiv.org, revised Mar 2024.
    5. Crosignani, Matteo & Macchiavelli, Marco & Silva, André F., 2023. "Pirates without borders: The propagation of cyberattacks through firms’ supply chains," Journal of Financial Economics, Elsevier, vol. 147(2), pages 432-448.
    6. 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.
    7. Ersahin, Nuri & Giannetti, Mariassunta & Huang, Ruidi, 2024. "Supply chain risk: Changes in supplier composition and vertical integration," Journal of International Economics, Elsevier, vol. 147(C).
    8. Alex Kim & Maximilian Muhn & Valeri Nikolaev, 2023. "Bloated Disclosures: Can ChatGPT Help Investors Process Information?," Papers 2306.10224, arXiv.org, revised Feb 2024.
    9. Gilles Hilary & Vanessa Serret, 2023. "Governance and Digital Transformation [Gouvernance et transformation numérique]," Post-Print hal-04380300, HAL.
    10. Loic Mar'echal & Nathan Monnet, 2024. "Disentangling the sources of cyber risk premia," Papers 2409.08728, arXiv.org.
    11. Loic Mar'echal & Alain Mermoud & Dimitri Percia David & Mathias Humbert, 2024. "Measuring the performance of investments in information security startups: An empirical analysis by cybersecurity sectors using Crunchbase data," Papers 2402.04765, arXiv.org, revised Feb 2024.

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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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