Beware of false prophets: Cybersecurity risk and strategic voluntary disclosure

Abstract

This study explores how cybersecurity risk influences voluntary disclosure, with a particular focus on management forecasts. We find that managers in firms with higher ex-ante cyber risk issue more financial forecasts. This positive effect is largely due to increased information demand from market participants when confronted with elevated cybersecurity concerns. Further analyses reveal that management forecasts in response to cyber risk, while conveying more positive and long-term information, exhibit lower precision and accuracy. Overall, we interpret these findings as managers strategically using optimistic disclosures, even if these disclosures’ quality is subpar, to enhance market valuation when their firm is exposed to cybersecurity risk.