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Cybersecurity, Capital Allocations and Management Control Systems


  • Lawrence Gordon
  • Martin Loeb
  • Tashfeen Sohail
  • Chih-Yang Tseng
  • Lei Zhou


The design and use of management control systems can play a key role in dealing with cybersecurity issues that have arisen in tandem with the emergence of the Internet. Efficient management control systems will reduce a firm's likelihood of suffering significant losses from cybersecurity breaches. Drawing on and extending the extant agency-based capital budgeting literature, this paper demonstrates the relevance of the study of management accounting controls to problems arising in the cybersecurity setting. The main finding is that firms can use an information security audit (which is an integral part of a management control system) along with adjustments to the compensation payments to the agent and the investment decision rules, to mitigate a Chief Information Security Officer's inherent empire building preferences. The paper also identifies additional research areas where management accountants with expertise in management control systems can contribute to the academic literature and practice surrounding cybersecurity issues.

Suggested Citation

  • Lawrence Gordon & Martin Loeb & Tashfeen Sohail & Chih-Yang Tseng & Lei Zhou, 2008. "Cybersecurity, Capital Allocations and Management Control Systems," European Accounting Review, Taylor & Francis Journals, vol. 17(2), pages 215-241.
  • Handle: RePEc:taf:euract:v:17:y:2008:i:2:p:215-241 DOI: 10.1080/09638180701819972

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    References listed on IDEAS

    1. Ackert, Lucy F. & Tian, Yisong S., 2001. "Efficiency in index options markets and trading in stock baskets," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1607-1634, September.
    2. Shlomo Benartzi & Richard H. Thaler, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 73-92.
    3. Tian, Yisong S., 2004. "Too much of a good incentive? The case of executive stock options," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1225-1245, June.
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    1. repec:spr:infosf:v:19:y:2017:i:5:d:10.1007_s10796-016-9648-8 is not listed on IDEAS
    2. Daniel Schatz & Rabih Bashroush, 0. "Economic valuation for information security investment: a systematic literature review," Information Systems Frontiers, Springer, vol. 0, pages 1-24.

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