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Making better IS security investment decisions: discovering the cost of data breach announcements during the COVID-19 pandemic

Tianxi Dong (Finance and Decision Sciences, Trinity University, San Antonio, Texas, USA)
Suning Zhu (Finance and Decision Sciences, Trinity University, San Antonio, Texas, USA)
Mauro Oliveira (Finance and Decision Sciences, Trinity University, San Antonio, Texas, USA)
Xin (Robert) Luo (Department of MIDS, The University of New Mexico, Albuquerque, New Mexico, USA)

Industrial Management & Data Systems

ISSN: 0263-5577

Article publication date: 24 November 2022

Issue publication date: 27 February 2023

291

Abstract

Purpose

Stock price reactions have often been used to evaluate the cost of data breaches in the current information systems (IS) security literature. To further this line of research, this study examines the impact of data breaches on stock returns, information asymmetry and unsystematic firm risk in the context of COVID-19.

Design/methodology/approach

This paper employs an event study methodology and examines data breach events released in public databases, spanning pre- and post-COVID settings. This study investigated 283 data breaches of the US publicly traded firms, and the economic cost was measured by cumulative abnormal returns (CARs), trading volume, bid-ask spread and unsystematic risk.

Findings

The authors observe that data breaches during the COVID pandemic make investors react more negatively to data breach announcements, as reflected in the significantly negative difference in CARs between breached firms before COVID and those after COVID. The findings also indicate that, after the disclosure of data breach incidents, information asymmetry is reduced to a lesser extent compared with that in the pre-COVID setting. The authors also find that data breach events lead to an increase in the unsystematic risk of breached companies in the pre-COVID era but no change in the post-COVID era.

Originality/value

This study is the first effort to examine the economic consequences of data breaches by investigating the effects in the form of trading activities and risk measurement in the COVID setting.

Keywords

Citation

Dong, T., Zhu, S., Oliveira, M. and Luo, X.(R). (2023), "Making better IS security investment decisions: discovering the cost of data breach announcements during the COVID-19 pandemic", Industrial Management & Data Systems, Vol. 123 No. 2, pp. 630-652. https://doi.org/10.1108/IMDS-06-2022-0376

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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