Data Breaches and Corporate Liquidity Management

Posted: 20 Jun 2018 Last revised: 8 Oct 2020

See all articles by Kwabena Antwi Boasiako

Kwabena Antwi Boasiako

Victoria University of Wellington - School of Economics and Finance

Michael O'Connor Keefe

Victoria University of Wellington

Date Written: April 20, 2019

Abstract

Holding the underlying likelihood of experiencing a data breach constant, mandatory data breach disclosure laws increase risks and costs related to data breaches. This paper investigates the effects of data breach disclosure laws, and the subsequent disclosure of data breaches on the cash policies of corporations in the United States. Exploiting a series of natural experiments regarding the staggered state-level data breach disclosure laws, we show that the passage of mandatory disclosure laws leads to an increase in corporate cash holdings, particularly among financially constrained firms. This shows that data security transparency laws influence firm liquidity risk management. Further, we find firms that suffer data breaches adjust their financial policies by holding more cash, decrease their external financing as well as investment activities.

Keywords: data breach, disclosure laws, cash holdings, industry spill over

JEL Classification: G3

Suggested Citation

Boasiako, Kwabena Antwi and O'Connor Keefe, Michael, Data Breaches and Corporate Liquidity Management (April 20, 2019). Available at SSRN: https://ssrn.com/abstract=3191692 or http://dx.doi.org/10.2139/ssrn.3191692

Kwabena Antwi Boasiako (Contact Author)

Victoria University of Wellington - School of Economics and Finance ( email )

PO Box 600
Wellington, 6140
New Zealand

Michael O'Connor Keefe

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

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