Firm Actions Toward Data Breach Incidents and Firm Equity Value: An Empirical Study

Abstract

Managing information resources including protecting the privacy of customer data plays a critical role in most firms. Data breach incidents may be extremely costly for firms. In the face of a data breach event, some firms are reluctant to disclose information to the public. Firm may be concerned with the potential drop in the market value following the revelation of a data breach. This paper examines the impact of data breach incidents to the firm’s market value/equity value, and explores the possibility that certain firm behaviors may reduce the cost of the incidents. We use regression analysis to identify the factors that affect cumulative abnormal stock return (CAR). Our results indicate that when data breach happens, firms not only should notify customers or the public timely, but also try to control the amount of information disclosed. These findings should provide corporate executives with guidance on managing public disclosure of data breach incidents.