Do firms underreport information on cyber-attacks? Evidence from capital markets |
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Authors: | Eli Amir Shai Levi Tsafrir Livne |
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Institution: | 1.Coller School of Management,Tel Aviv University,Tel Aviv,Israel;2.Kenan-Flagler Business School,University of North Carolina,Chapel Hill,United States |
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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. |
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