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Research

đź“ť Working Papers

Ahead of the Breach: Anticipatory Approaches to Mitigating Ex-post Costs of Cyber Breaches

Cyber Breach Image

This study critically evaluates the proactive cybersecurity strategies of managers in publicly traded companies, leveraging a unique dataset of actual cybersecurity risk measures from a leading cybersecurity scores company. I find that managers exhibit an awareness of their cybersecurity risks and engage in preemptive actions to either enhance their cyber defenses, acquire cyber insurance, or increase cash reserves before a breach or some combination of these actions. This investigation reveals that while some firms bolster their cyber defenses, others opt for cyber insurance and increased cash reserves as precautionary measures. The findings indicate that cyber insurance is not complementing but rather substituting for investment in cyber defense mechanisms. This substitution raises concerns about the cyber insurance market’s adverse selection and moral hazard problems.

Being Revised Based on External Feedback.

Cyber Risk and Inventory management

Cyber Breach Image

This research examines the effects of data breaches on corporate sales and inventory management strategies. It presents evidence that such breaches negatively impact a firm’s sales. In anticipation of these adverse outcomes, firms seem to strategically lower their inventory levels prior to a breach to mitigate the costs associated with excess stock. The findings indicate a deliberate reduction in inventory investments as a precaution against a potential data breach. Moreover, it is observed that firms do not significantly alter their inventory strategies post-breach, suggesting a form of preemptive hedging against the inventory-related risks of cyber incidents. This study sheds light on the proactive measures firms take in managing inventory in the face of cybersecurity threats, underscoring the wider operational ramifications of managing cyber risks.

Being Revised Based on External Feedback.

Expectations, Data Breaches, and Shareholder Wealth

In this study, I investigate the stock market’s reactions to corporate data breach announcements, focusing on the previously neglected role of market expectations. Empirical findings indicate that breaches surpassing anticipated severities elicit notably negative stock market responses. Additionally, these market reactions correlate significantly with subsequent drops in firm sales. This suggests that market anticipations, influenced by the unexpected severity of breaches, serve as a predictive indicator of the forthcoming reputational damages firms face after a breach.

Breaking the Chains: The Role of Financial Inclusion and development in Combating Modern Slavery and Human Trafficking

This study presents novel empirical evidence on the causal association between financial development, financial inclusion, modern slavery, and human trafficking. Adopting a macro-level perspective, its findings demonstrate that a 1% unit increase in the financial development index score and financial institution access index score leads to a 1.471% and 2.103% reduction in the prevalence of modern slavery, respectively. Additionally, this study highlights that enhanced accessibility to financial institutions is associated with a decrease in the number of trafficked individuals, particularly among men and women subjected to sexual exploitation.

đź’­ In Progress

Crypto Risk in Banking — Hengguo Da, Ndackyssa Oyima

Cryptocurrencies, propelled by blockchain technology, have become significant in the financial landscape due to their decentralized nature and lower transaction costs. Yet, market volatility during the pandemic and events like the FTX platform collapse have spotlighted potential risks. With regulators like the SEC and FED wary of crypto risks spilling into traditional banking - the backbone of the US economy - we investigate: Are banks truly vulnerable to cryptocurrency risks? Do closer ties with cryptocurrencies amplify systemic financial risk? Our study analyzes the ripple effects of banks’ crypto affiliations on systemic risk. Our key contributions include a novel measure of individual bank exposure to cryptocurrency and exploring whether such exposure heightens systemic risk.