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Insider trading ahead of cyber breach announcements

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  • Lin, Zhaoxin
  • Sapp, Travis R.A.
  • Ulmer, Jackie Rees
  • Parsa, Rahul

Abstract

Stock market reactions to cybersecurity breach announcements are generally negative. We find significant evidence of opportunistic insider trading, with insiders saving an average of $35,009 due to timely selling in the three months before the announcement of a cybersecurity breach. Late filing violations by insiders are more likely to occur near the announcement of a cyber breach. The bulk of opportunistic trading tends to occur 55–72 days before the public announcement. The results lend support to the U.S. Security and Exchange Commission’s recently announced goal of tightening restrictions on insider trading ahead of cyber breach announcements.

Suggested Citation

  • Lin, Zhaoxin & Sapp, Travis R.A. & Ulmer, Jackie Rees & Parsa, Rahul, 2020. "Insider trading ahead of cyber breach announcements," Journal of Financial Markets, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finmar:v:50:y:2020:i:c:s138641811930357x
    DOI: 10.1016/j.finmar.2019.100527
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    References listed on IDEAS

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    Cited by:

    1. Sepideh Ebrahimi & Kamran Eshghi, 2022. "A meta-analysis of the factors influencing the impact of security breach announcements on stock returns of firms," Electronic Markets, Springer;IIM University of St. Gallen, vol. 32(4), pages 2357-2380, December.
    2. Liu, Xiaojun & Wang, Li & Dai, Yunhao, 2023. "Capital market liberalization and opportunistic insider sales: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    3. Ryu, Doojin & Yang, Heejin & Yu, Jinyoung, 2022. "Insider trading and information asymmetry: Evidence from the Korea Exchange," Emerging Markets Review, Elsevier, vol. 51(PA).
    4. Wang, Heng Emily & Wang, Qin Emma & Wu, Wentao, 2022. "Short selling surrounding data breach announcements," Finance Research Letters, Elsevier, vol. 47(PB).
    5. Martin Eling & Michael McShane & Trung Nguyen, 2021. "Cyber risk management: History and future research directions," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 24(1), pages 93-125, March.
    6. Corbet, Shaen & Goodell, John W., 2022. "The reputational contagion effects of ransomware attacks," Finance Research Letters, Elsevier, vol. 47(PB).

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    More about this item

    Keywords

    Insider trading; Form 4; Cybersecurity; Data breach; Opportunistic trading; SEC enforcement action; Asymmetric information;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • K24 - Law and Economics - - Regulation and Business Law - - - Cyber Law
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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