Government Data and Financing Costs: Insights from Internal Controls
Prof. Sean S. CAO
Director and Co-founder of the AI Initiative for Capital Market Research, Associate Professor, University of Maryland
Date: 24 February 2025 (Monday)
Time: 10:00 – 11:30
Venue: E22-G015
Host: Prof. Jason XIAO, Professor in Accounting
Abstract
We investigate the economic impact of data breaches on U.S. local governments. We find that breached municipalities experience a 7-basis-point increase in municipal bond yield spreads, with insider-initiated breaches causing more pronounced increases in financing costs than external cyberattacks. Importantly, this effect is concentrated in municipalities with pre-existing weaknesses in general or information system-specific internal controls, suggesting that stronger governance and IT systems can mitigate post-breach financing costs. In terms of real outcomes, we find that governments with weak controls respond to the heightened financial costs from data breaches by reducing overall spending and reallocating expenditures, which potentially constrain their ability to deliver certain public services. Despite these risks, municipalities invest only weakly in internal controls after breaches, raising concerns about future breach risk preparedness and cost management.
Speaker
Prof. Cao is the Director and Founding faculty of the AI initiative for Capital Market Research and holds the position of associate professor (with tenure) at the Robert H. Smith School of Business, University of Maryland. His research primarily revolves around the applications and implications of AI for capital markets, encompassing both accounting and finance studies. His research work has gained prominence in respected media outlets such as the Financial Times, CNBC, Bloomberg, The Guardian, Quartz, and IR Magazine. His passion for research extends to his teaching and he also writes an AI textbook for accounting/finance. His research papers have been published in leading journals in finance, accounting, and computer science including Journal of Accounting Research, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Review of Financial Studies, The Accounting Review, IEEE Computer. He has been honored with an award from the Deloitte Initiative for AI and Learning (DIAL).
All are welcome!
