Cybersecurity Breaches reduce innovation
Chris Zhijian He 2020 Tracie Frost Robert E. Pinsker Florida Atlantic University, , " The Impact of Reported Cybersecurity Breaches on Firm Innovation", JOURNAL OF INFORMATION SYSTEMS American Accounting Association Vol. 34, No. 2 Summer 2020, https://www.researchgate.net/profile/Robert-Pinsker/publication/336947778_The_Impact_of_Reported_Cybersecurity_Breaches_on_Firm_Innovation/links/6615844466ba7e2359b94304/The-Impact-of-Reported-Cybersecurity-Breaches-on-Firm-Innovation.pdf [MSDI-JE-wk1]
ABSTRACT: Many firms cite cyber risk as a primary risk factor due to the increase in cybersecurity breach (CSB) incidents. Existing research focuses on the negative, short-term impacts from CSBs, but the longer-term impact is still unknown. Our study investigates firms’ levels of innovation following a CSB as an important determinant of firm growth and profitability. Examining reported breaches from 2005–2014, we find a 10 percent decline in research and development spending in the year following a CSB. Further investigation indicates that firms for which R&D is not the primary business model drive the results. We also provide evidence of a decrease in patents two years after a breach, an increase in cash holdings in the year after the breach, and a decrease in investment efficiency four years following the breach. Our aggregate results suggest that CSBs are associated with future strategic decisions involving firm-level innovation and investment decisions.