Global Cybersecurity, Cyber Risks and Firm Value: International Evidence

Synopsis Research problem This study delves into the critical question of how national cybersecurity measures influence the financial valuation of firms in a world increasingly threatened by cyber risk. It specifically explores whether stronger cybersecurity commitments at the country level enhance firm value, particularly in environments facing heightened cyber threats. Motivation or theoretical reasoning The motivation for this research arises from escalating concerns over cybersecurity breaches, increasingly seen as a significant threat to firms and economies worldwide. Drawing on both institutional theory and legitimacy theory, the study argues that national cybersecurity environments play a pivotal role in shaping investor perceptions and confidence. It is theorized that stronger cybersecurity measures reduce perceived risks, bolster investor confidence and, consequently, increase firm value. Key hypotheses This study empirically investigates two key hypotheses: (a) country-level cybersecurity arrangements are positively related to firm value, and (b) the impact of cybersecurity arrangements on firm value is more pronounced in countries with higher levels of cybersecurity risk. Target population The study examines firms from 60 countries using data from 2015 to 2020. The Global Cybersecurity Index data are obtained from the International Telecommunication Union, while firm-level information is sourced from multiple databases, including Refinitiv ESG and Worldscope. Methodology adopted To test these hypotheses, the study utilizes ordinary least squares regression. To mitigate endogeneity, it employs difference-in-differences estimation, using quasi-natural experiments, such as the 2018 enactment of the European Union’s General Data Protection Regulation and the COVID-19 pandemic, as exogenous shocks. An instrumental variable analysis, using secure Internet servers per million people, further strengthens the findings. Analyses Drawing on 45,930 firm-year observations across 60 countries, this study rigorously investigates the causal effect of cybersecurity arrangements on firm value. Findings The results indicate that firms in countries with stronger cybersecurity arrangements enjoy higher market valuations. This effect is more significant in countries facing elevated cyber risk. The study shows the impact is amplified in countries with greater geopolitical stability and remains robust across various threats, such as phishing and malware. These findings carry implications for policymakers, investors, and corporate leaders, suggesting that strong national cybersecurity frameworks not only mitigate cyber risk but also enhance firm value. Policymakers are encouraged to strengthen cybersecurity infrastructure to create a secure business environment, thereby boosting investor confidence and firm value.