The Role of Peer Events in Corporate Governance: Evidence from Data Breaches
The Accounting Review · 2022 · Volume 97 · Issue 2
Abstract
Economic theory suggests that negative peer events can result in market-wide spillovers that help unaffected firms take real actions to enhance corporate governance. Motivated by the SEC's concern about cybersecurity, I study the role of peer events in corporate governance using the setting of data breaches. While controlling for firm-specific time-varyingunobservable characteristics, I find thatpeerdata breaches are associated with a reduction in future internal control material weaknesses fornon-breached firms. The association is robust to a changes analysis and varies cross-sectionally with breach, firm, and board characteristics. Inferences remain consistent when studying IT-related material weaknesses only. Finally, non-breached firms are more likely to have a cybersecurity expert on the top management team after a peer breach. My findings have important implications for mandatory disclosure regulation in general and, in particular, suggest that regulators can help reduce market-wide exposure to cyber risk by facilitating disclosure of cyber incidents. Data Availability:All data used in the study are publicly available. JEL Classifications:G34; M15.
Keywords
peer events, corporate governance, internal controls, information technology, cybersecurity, information spillover, data breaches
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