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

• Main Authors: CHEN, Wen, LI, Xing, WU, Haibin, ZHANG, Liandong
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: Cybersecurity; Data breach; Discretionary expenditures; Managerial myopia; Peer effect; Real earnings management; Accounting; Information Security; Management Information Systems
• Online Access: https://ink.library.smu.edu.sg/soa_research/2047; https://ink.library.smu.edu.sg/context/soa_research/article/3074/viewcontent/ManagerialMyopiaCybersecurity_av.pdf
• Institution: Singapore Management University

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.