STOCK PRICE CRASH RISK AND CYBERSECURITY EXPOSURE

Abstract

Prior literature attributes stock price crash risk to managers hiding or personally absorbing firm-specific negative information from investors. Managers hide information in the 10-K reports which lead to stock price crashes once that information is made public. This paper studies the impact of the cybersecurity disclosure in the annual financial report on the stock price crash risk. The analyzed data covers the period from 2000 to 2021. A firm-level measure of cybersecurity risk is then added to the regression model. Following Kim et al. (2019), we document that a strong association between cybersecurity risk and crash risk exists.