Analysis of the Effects of Security Breaches on Firm Value

Abstract

The purpose of this study is to examine, on intradaily market microstructure basis, fifteen recent occurrences of corporate security breaches to extend our understanding of market efficiency. We document minor average price responses to announcements of a security breach in the firms??target of an attack, contrary to many other corporate announcement studies, which document immediate price reaction to an announcement. Surprisingly, we find that the matching firms in our study have a stronger market microstructure response to the announcement of the attack instead. This study suggests to high-frequency investors, such as hedge funds, that they should focus their attention and scarce resources on developing trading strategies on other corporate events and announcements rather than on the announcement of security breaches.