The Impact of Real Earnings Management on Cybersecurity: Evidence from Data Breaches

Speaker: Prof. Liandong Zhang (Singapore Management University)

Topic:	The Impact of Real Earnings Management on Cybersecurity: Evidence from Data Breaches
Time&Date:	13:00-14:15 pm, 2019/7/17 (Wednesday)
Venue:	Room 619, Teaching A
Speaker:	Prof. Liandong Zhang (Singapore Management University)Dr. Jianfeng Hu (Singapore Management University)
Abstract:	This study investigates one real consequences of real earnings management: the increase in firm cybersecurity risk. Using data on U.S. listed firms over 2005-2017, we document significantly higher likelihood and more data loss of data breaches for firms that engage more in real earnings management by cutting cybersecurity related expenditures. We further show that the relation between real earnings management and data breaches concentrates in the subsample of firms with incentives to manage earnings. This finding is more pronounced for firms with weaker information technology (IT) system, less external monitoring and lower expected costs of real earnings management. Finally, we find that not only breached firms but also their peer firms with real earnings management of abnormal expense cutting undertake remediation actions in the post-breach years by increasing their discretionary expenditures.