Data Breaches and Firm Credit Risk

32 Pages Posted: 23 Feb 2021 Last revised: 1 Apr 2021

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: February 15, 2021

Abstract

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

Boasiako, Kwabena Antwi and O'Connor Keefe, Michael, Data Breaches and Firm Credit Risk (February 15, 2021). Available at SSRN: https://ssrn.com/abstract=3782111 or http://dx.doi.org/10.2139/ssrn.3782111

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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