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Sound and Fury, Signifying Nothing? Impact of Data Breach Disclosure Laws

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  • Muhammad Zia Hydari
  • Yangfan Liang
  • Rahul Telang

Abstract

Data breach disclosure (DBD) is presumed to improve firms' cybersecurity practices by inducing fear of subsequent revenue loss. This revenue loss, the theory goes, will occur if customers punish an offending firm by refusing to buy from them and is assumed to be the primary mechanism through which DBD laws will change firm behavior ex ante. However, our analysis of a large-scale data breach at a US retailer reveals no evidence of a decline in revenue. Using a difference-in-difference design on revenue data from 302 stores over a 20-week period around the breach disclosure, we found no evidence of a decline either across all stores or when sub-sampling by prior revenue size (to account for any heterogeneity in prior revenue size). Therefore, we posit that the presumed primary mechanism of DBD laws, and thus these laws may be ineffective and merely a lot of "sound and fury, signifying nothing."

Suggested Citation

  • Muhammad Zia Hydari & Yangfan Liang & Rahul Telang, 2024. "Sound and Fury, Signifying Nothing? Impact of Data Breach Disclosure Laws," Papers 2406.15215, arXiv.org.
    • Handle: RePEc:arx:papers:2406.15215
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    File URL: http://arxiv.org/pdf/2406.15215
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    References listed on IDEAS

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    1. Park, Sangchul, 2019. "Why information security law has been ineffective in addressing security vulnerabilities: Evidence from California data breach notifications and relevant court and government records," International Review of Law and Economics, Elsevier, vol. 58(C), pages 132-145.
    2. Peltzman, Sam, 1975. "The Effects of Automobile Safety Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 677-725, August.
    3. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
    4. repec:cup:cbooks:9780521885881 is not listed on IDEAS
    5. Arup Bose & Debashis Pal & David E. M. Sappington, 2021. "The political economy of voluntary public service," Public Choice, Springer, vol. 186(1), pages 29-61, January.
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