Earnings management in firms with data security breaches

Howard Xu, Savannah Guo, Jacob Z. Haislip, Robert E. Pinsker

Research output: Contribution to journalArticlepeer-review

7 Scopus citations


Anecdotal research suggests that management is concerned about how Data Security Breaches (DSBs) impact a firm’s financial performance. We investigate: whether managers in DSB firms manipulate earnings through real earnings management (REM) and/or accrual-based earnings management (AEM); how breach type, disclosure delay, and external monitoring impact earnings management activities; and how earnings management activities influence a DSB firm’s performance. Using a propensity score matched sample, results suggest that DSB firms are more likely to manipulate earnings via REM, but not AEM. Additionally, we find that DSB firms engage in REM through cutting discretionary expenses, decreasing discretionary cash spending, and reducing the cost of goods sold through overproduction. We find some evidence that firms are more likely to increase REM when DSBs involve financial information or when firms delay the DSB disclosure or have low analyst coverage. We provide evidence that REM activities lead to lower subsequent performance in DSB firms.

Original languageEnglish
Pages (from-to)267-284
Number of pages18
JournalJournal of Information Systems
Issue number3
StatePublished - Sep 1 2019


  • Cybersecurity
  • Earnings management
  • Security breaches


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