City Hall Has Been Hacked! The Financial Costs of Lax Cybersecurity

State and local governments are attractive cybercrime targets because of inadequate cybersecurity and ample access to sensitive information. We show that external data breaches translate to higher financing costs for governments including negative abnormal bond returns in the secondary market and higher offering yields and bond pricing uncertainty in the primary market. We also find that governments increase total spending around cyberattacks, suggesting higher operating costs as the likely channel behind the spike in financing costs. Exploiting state-level variation in the timing of breach notification laws, we show that they have not significantly strengthened cybersecurity