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Contagion or competitive effects?: Lenders’ response to peer firm cyberattacks

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Title:Contagion or competitive effects?: Lenders’ response to peer firm cyberattacks
Authors:Sheneman, Amy
Keywords:loan spreads
data breaches
business risk
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Date Issued:2021
Abstract:This study examines whether and when cybersecurity events of peer firms in an industry influence the cost of private debt for other firms in the industry. If lenders adjust expectations about industry-wide cyber risk based on peer cyberattacks, a contagion effect likely exists whereby non-breached borrowers face higher loan spreads. If, however, lenders view cyberattacks as idiosyncratic risks, a competitive effect may dominate whereby non-breached borrowers benefit through reductions in loan spreads. Unlike other firm-specific events (i.e., bankruptcies, restatements) shown to have contagion effects in determining a firm’s cost of debt, the results provide evidence of competitive effects for cybersecurity events. These effects are more pronounced for non-term and shorter duration loans, and for industries with high growth and low leverage. Collectively, the evidence suggests cyberattacks provide firm-specific information to lenders and competitors benefit from this intra-industry information transfer.
Appears in Collections: 13 Financial Accounting 7: Debt market research (including credit ratings/Debt contracts) (FAR7)

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