Review of Financial Studies · 2022 · 264 citations · 59 references
BusinessCybersecurityFinanceCorporate DisclosureRisk AnalysisRisk AnalyticsCyber RiskCybersecurity ManagementFinancial RiskMarket RiskRisk ReportingSecurity ManagementCybersecurity DisclosureCybersecurity Risk ManagementRisk-based Security MeasurementStock Market ReturnsTechnology Intensive Industries
The study introduces a novel firm‑level cybersecurity risk metric and tests whether it is priced in stock returns. The metric is derived from textual analysis of risk disclosures comparing hacked and non‑hacked U.S.‑listed firms. High‑risk firms earn up to 8.3% more annually but underperform during high‑risk periods; the metric is higher in IT firms, aligns with attack‑linked characteristics, and forecasts future cyberattacks. An Internet Appendix is provided on the Oxford University Press website alongside the final published paper.
Abstract Based on textual analysis and a comparison of cybersecurity risk disclosures of firms that were hacked to others that were not, we propose a novel firm-level measure of cybersecurity risk for all U.S.-listed firms. We then examine whether cybersecurity risk is priced in the cross-section of stock returns. Portfolios of firms with high exposure to cybersecurity risk outperform other firms, on average, by up to 8.3$\%$ per year. Yet, high-exposure firms perform poorly in periods of high cybersecurity risk. Reassuringly, the measure is higher in information-technology industries, correlates with characteristics linked to firms hit by cyberattacks, and predicts future cyberattacks. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online
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