Impact of data breaches on accounting narratives

: a study on S&P 500 MED firms

Abstract

In light of rising cybersecurity concerns, companies are increasingly focusing on risk management and data security. This study explores the disclosure of cybersecurity incidents as a proxy for changes in financial reporting tone. Specifically, I expect a change in tone around the publication of the annual and quarterly reports of U.S. S&P 500 healthcare and medical providers industry (MED) companies during the 2010 to 2019 time period. Building upon existing literature on narrative accounting tone and data security breaches (DSBs) and further complemented by literature on board characteristics, earnings quality, and financial performance, this research aims to fill a gap by analyzing how narrative tone shifts following DSBs. Using a quantitative approach, this study conducts a quarterly analysis of the SEC’s 10-Q and 10-K reports to assess how narrative tone shifts in the quarters preceding a DSB announcement and in the quarter a DSB is disclosed and announced. The findings underscore a noticeable impact of DSB disclosures on narrative tone. This study contributes to the existing literature by highlighting the importance of the analysis of narrative tone as a tool in risk evaluation and has implications for auditors, analysts and stakeholders of interest.

Date of Award	18 Dec 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Eleonora Monaco (Supervisor) & Ricardo Ribeiro (Co-Supervisor)