Hacking Corporate Reputations

We exploit unexpected corporate data breaches to study whether firms invest in rebuilding intangible capital following negative reputation shocks. Data breaches cause long-term reductions in firm value and burn reputational capital, creating an incentive for firms to rebuild intangible capital through activities such as CSR. Using firms' charitable contributions as a novel measure of CSR investment, we show that firms increase CSR investment and earn higher CSR scores after reputation-reducing data breaches. We find similar results using a broader sample of negative reputation shocks. Our paper is among the first to document how firms respond following the destruction of reputational capital.