Incentive

Marketing

Engineering

Stock (firearms)

Microeconomics

Risk appetite

Competitor analysis

Computer security

Economics

Computer science

Guard (computer science)

Cyber-attack

Business

Corporate governance

Mechanical engineering

Reputation

Sociology

Risk management

Information asymmetry

Industrial organization

Programming language

Finance

Private information retrieval

Reputation management

Shareholder

Social science

Journal of Financial Economics

We develop a model where a firm has an optimal exposure to cyber risk. With rational, fully informed agents and with no hysteresis, a successful cyberattack should have no impact on a financially unconstrained target's reputation and post-attack policies. In contrast, when a successful attack involves the loss of personal financial information, there is a significant shareholder wealth loss, which is much larger than the attack's out-of-pocket costs. This excess loss is higher when the attack decreases sales growth more and lower when the board pays more attention to risk management before the attack. Further, an attack decreases a firm's risk appetite, as it beefs up its risk management and information technology and decreases the risk-taking incentives of management. Finally, successful cyberattacks adversely affect the stock price of firms in the target's industry. These results imply that successful attacks with personal financial information loss provide adverse information about cyber risk to target firms, their stakeholders, and their competitors.

Risk management, firm reputation, and the impact of successful cyberattacks on target firms