The Impact of Executives' IT Expertise on Reported Data Security Breaches

Data security breaches (DSBs) are increasing investor and regulator pressure on firms to improve their IT governance (ITG) in an effort to mitigate the related risk. Drawing on upper echelon theory, we argue that DSB risk cannot be mitigated by one executive alone, but, rather, is a shared leadership responsibility of the top management team (TMT; i.e., Chief Executive Officer (CEO), Chief Financial Officer (CFO), and Chief Information Officer (CIO)). By examining a sample of DSBs from 2005 to 2017, our study finds that CEOs with IT expertise are associated with fewer DSBs, with some evidence of a focus on DSBs containing consumer information. Our evidence also suggests that CFOs with IT expertise are less likely to report a DSB in general, as well as DSBs involving employee information or instigated by a person outside of the firm and, to a weaker extent, DSBs containing consumer information. Further, the presence of a CIO as part of the TMT is significantly associated with reduced DSBs of all types examined. Our results are robust to endogeneity concerns and an alternative propensity score matched sample. This study contributes a granular investigation of DSB risk involving executives with IT expertise that extends the upper echelon and ITG literatures.