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Social media and stock price reaction to data breach announcements: Evidence from US listed companies

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

Abstract

Data breaches are not only on the increase but firms struggle to detect, defend and respond to such breaches. A data breach opens a period of crisis for the affected firm, generates complex information, and requires providing information to a variety of stakeholders in a timely and proper manner. This article reports one of the first studies on the impact of social media exposure by affected firms on stock price reaction to a data breach announcement. Using an event study methodology on a sample of 87 data breaches from 73 US publicly-traded firms from 2011 to 2014, we find that use of social media exposure at the time of a data breach exacerbates the negative stock price to the announcement. Interestingly, we find that this negative association is contingent on traditional media visibility; the effect is positive for low-visibility companies. Based on our results, we posit that there is a need for a contingency model for social media communication during firm crises and such a model should be based at least on firm size, visibility and the type of crisis.

Suggested Citation

  • Rosati, Pierangelo & Deeney, Peter & Cummins, Mark & van der Werff, Lisa & Lynn, Theo, 2019. "Social media and stock price reaction to data breach announcements: Evidence from US listed companies," Research in International Business and Finance, Elsevier, vol. 47(C), pages 458-469.
    • Handle: RePEc:eee:riibaf:v:47:y:2019:i:c:p:458-469
    DOI: 10.1016/j.ribaf.2018.09.007
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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. Sifat, Imtiaz Mohammad & Thaker, Hassanudin Mohd Thas, 2020. "Predictive power of web search behavior in five ASEAN stock markets," Research in International Business and Finance, Elsevier, vol. 52(C).
    3. Kristin Masuch & Maike Greve & Simon Trang, 2021. "What to do after a data breach? Examining apology and compensation as response strategies for health service providers," Electronic Markets, Springer;IIM University of St. Gallen, vol. 31(4), pages 829-848, December.
    4. Syed Emad Azhar Ali & Fong-Woon Lai & Rohail Hassan & Muhammad Kashif Shad, 2021. "The Long-Run Impact of Information Security Breach Announcements on Investors’ Confidence: The Context of Efficient Market Hypothesis," Sustainability, MDPI, vol. 13(3), pages 1-27, January.
    5. Foecking, Nico & Wang, Mei & Huynh, Toan Luu Duc, 2021. "How do investors react to the data breaches news? Empirical evidence from Facebook Inc. during the years 2016–2019," Technology in Society, Elsevier, vol. 67(C).
    6. Nguyen, Cuong & Hoang, Lai & Shim, Jungwook & Truong, Phuong, 2020. "Internet search intensity, liquidity and returns in emerging markets," Research in International Business and Finance, Elsevier, vol. 52(C).
    7. Wu, Chunying & Xiong, Xiong & Gao, Ya & Zhang, Jin, 2022. "Does social media distort price discovery? Evidence from rumor clarifications," Research in International Business and Finance, Elsevier, vol. 62(C).
    8. Alomari, Mohammad & Al Rababa’a, Abdel Razzaq & El-Nader, Ghaith & Alkhataybeh, Ahmad & Ur Rehman, Mobeen, 2021. "Examining the effects of news and media sentiments on volatility and correlation: Evidence from the UK," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 280-297.
    9. Masoud, Najeb & Al-Utaibi, Ghassan, 2022. "The determinants of cybersecurity risk disclosure in firms’ financial reporting: Empirical evidence," Research in Economics, Elsevier, vol. 76(2), pages 131-140.

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