Cybersecurity risk and firm investment efficiency

This paper examines the relationship between cybersecurity risk and firm investment efficiency. It documents that cybersecurity risk contributes to overinvestment but does not influence underinvestment. The results remain robust after considering endogeneity concerns and alternative model specifications. We also identify key underlying mechanisms driving the relationship, including empire-building, external monitoring, and information asymmetry. Specifically, the impact of cybersecurity risk on overinvestment is more pronounced among firms with greater empire-building tendencies, weaker external monitoring, and higher information asymmetry.<p></p>