Are the good spared? Corporate social responsibility as insurance against cyber security incidents

Abstract

AbstractDespite the increasing consensus that socially responsible behavior can act as insurance against externally induced shocks, supporting evidence remains somewhat inconsistent. Our study provides a clear demonstration of the insurance‐like properties of corporate social responsibility (CSR) in preserving corporate financial performance (CFP), in the event of a data (cyber) breach. Exploring a sample of 230 breached firms, we find that data breaches lead to significantly negative CFP outcomes for low CSR firms, with the dynamic being particularly pronounced in consumer‐sensitive industries. Further, we show that firms increase their CSR activities in the aftermath of a breach to recover lost goodwill and regain stakeholder trust. Overall, our results support the use of CSR as a strategic risk‐mitigation tool that can curtail the consequences of data breaches, particularly for firms operating in consumer‐centric environments.