Prior literature has become increasingly inconsistent as to the impact of data breaches, in part because researchers have not settled on an appropriate identifier for breach severity. The goal of our study is to develop a breach severity measure and validate the new measure by investigating the relation between breach severity and debt market responses. Using the new measure, we find severe data breaches are positively associated with the cost of debt, the size of new debt facilities, the total number of new debt facilities issued, and the average number of lenders included in the new facilities. We also provide evidence that financially constrained firms are more likely to be adversely affected by a severe data breach. Collectively, the results suggest our new breach severity measure is an effective measure of data breach severity.

Data Availability: Data are available from the public sources cited in the text.

JEL Classifications: G32; M41.

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