The Relationship between Board-Level Technology Committees and Reported Security Breaches

After several high-profile data security breaches (e.g., Target Corporation, Michaels, Home Depot), corporate boards are prioritizing oversight of Information Technology (IT) risk. Firms are also increasingly faced with disclosure decisions regarding IT security breaches. This study proposes that firms can use the creation of a board-level technology committee as part of the firm’s information technology governance (ITG) to signal the firm’s ability to detect and respond to security breaches. Using reported security breaches during the time period 2005-2014, results indicate that firms with technology committees are more likely to have reported breaches in a given year than are firms without the committee. Further analysis suggests that this positive association is driven by relatively young technology committees and external source breaches. Specifically, as a technology committee becomes more established, its firm is not as likely to be breached. To obtain further evidence on the perceived value of a technology committee, this study uses a returns analysis and finds that the presence of a technology committee mitigates the negative abnormal stock returns arising from external breaches. Findings add to the evolving ITG literature, as well to the signaling theory and disclosure literatures.