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The effect of data breach announcements beyond the stock price: Empirical evidence on market activity

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  • Rosati, Pierangelo
  • Cummins, Mark
  • Deeney, Peter
  • Gogolin, Fabian
  • van der Werff, Lisa
  • Lynn, Theo

Abstract

Extending the literature that has focused thus far on stock price impact, this study investigates the effect of data breach announcements on market activity, specifically through the response of the bid-ask spread and trading volume. We investigate data breach announcements as a potential source of asymmetric information and provide a new dimension to the ongoing debate on market efficiency. Adopting an event study methodology on a sample of 74 data breaches from 2005 to 2014, we find that data breach announcements have a positive short-term effect on both bid-ask spread and trading volume. The effect is only evidenced however on the day of the event, with market efficiency ensuring a quick return to normal market activity. No abnormal trading activity emerges before announcements, so there is no evidence in our study that these types of events are being exploited by informed market participants. The magnitude of event day effects is found to be more pronounced for large breaches, and when the breach involves lost devices.

Suggested Citation

  • Rosati, Pierangelo & Cummins, Mark & Deeney, Peter & Gogolin, Fabian & van der Werff, Lisa & Lynn, Theo, 2017. "The effect of data breach announcements beyond the stock price: Empirical evidence on market activity," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 146-154.
    • Handle: RePEc:eee:finana:v:49:y:2017:i:c:p:146-154
    DOI: 10.1016/j.irfa.2017.01.001
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    6. Cao, Hung & Phan, Hieu V. & Silveri, Sabatino, 2024. "Data breach disclosures and stock price crash risk: Evidence from data breach notification laws," International Review of Financial Analysis, Elsevier, vol. 93(C).
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    10. Kamiya, Shinichi & Kang, Jun-Koo & Kim, Jungmin & Milidonis, Andreas & Stulz, Rene M., 2018. "What Is the Impact of Successful Cyberattacks on Target Firms?," Working Paper Series 2018-04, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
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    More about this item

    Keywords

    Data breach; Stock market; Bid-ask spread; Trading volume; Event study;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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