The Impact of Financial Restatement on Reported Data Security Breach

Data security issues are of great concern in the era of big data and cloud computing. Prior literature rarely pays attention to the relationship between data security breaches and corporate financial restatements. Based on the sample data combining three different databases, namely Privacy Rights Clearinghouse, Audit Analytics, and Compustat, ranging from 2005 to 2019, we empirically analyze the impacts of inadvertent and fraudulent restatements on data breaches. The results show that the financial restatement will reduce the risk of data breaches and the effect of fraudulent financial restatement is more significant. It indicates that the occurrence of financial restatements can serve as a warning for managers, and remind them to establish a more effective internal control system, thus reducing the risk of data breaches. The key findings may potentially provide a new theoretical perspective and provide managerial implications for the relevant managers of enterprises in data security management.