Data Breaches and Firm Credit Risk
32 Pages Posted: 23 Feb 2021 Last revised: 1 Apr 2021
Date Written: February 15, 2021
Data breaches may affect firms' future performance, financial stability, and risk profiles, thus potentially resulting in increased credit risk. Using firm-level credit ratings and credit default swap (CDS) spreads to proxy for credit risk, we find that data breaches lead to increases in firm credit risk. Firms exposed to data breaches are more likely to experience credit rating downgrades and an increase in the CDS spread of traded bonds. Also, firms who suffer data breaches report lower sales and ROA, experience an increase in financial distress, and conditional on a data breach incident, the likelihood of a future data breach increases. Lastly, these effects are magnified for firms with low interest coverage ratios.
Keywords: Data Breaches, Credit Risk, Credit Rating, Credit Default Swaps
JEL Classification: G10, G24, G30, G32
Suggested Citation: Suggested Citation