Affiliations: [a] Department of Accounting and Information Assurance, Robert H. Smith School of Business, University of Maryland, College Park, MD 20742, USA. E-mails: lgordon@rshmith.umd.edu, mloeb@rshmith.umd.edu, lzhou@rshmith.umd.edu | [b] University of Maryland Institute for Advanced Computer Studies
Abstract: By analyzing evidence of stock returns using a sophisticated market model over a long period and over two distinct and naturally arising sub-periods, this study helps resolve conflicting evidence from previous studies concerning the effect of information security breaches on market returns of firms. This study has three major findings. First, the impact of the broad class of information security breaches on stock market returns of firms is significant. Second, when breaches are classified by their primary effect in terms of (i) confidentiality, (ii) availability or (iii) integrity, attacks associated with breaches of availability are seen to have the greatest negative effect on stock market returns. Third, there has been a significant downward shift in the impact of the security breaches in the sub-period following the 9/11/2001 attacks versus the impact in the pre-9/11 period. Apparently, with increased media reporting of information security breaches without apparent devastating effects on targeted corporations, investors lowered their assessment of the costs of such breaches. Two possible reasons for this downward shift are (1) more effective remediation and disaster recovery and (2) a perceived decrease in the tendency of customers to refrain from doing business with firms experiencing an information security breach.
Keywords: Economics of information security, cost of information security breaches
