The Market Value and Reputational Effects from Lost Confidential Information

International Journal of Financial Management (October 2015) Vol. 5, Issue 4: 18-35.

38 Pages Posted: 15 Jan 2008 Last revised: 17 Nov 2017

See all articles by Joseph K. Tanimura

Joseph K. Tanimura

Berkeley Research Group, LLC

Eric W. Wehrly

Western Washington University

Date Written: May 1, 2009

Abstract

According to many business publications, firms that experience information security breaches suffer substantial reputational penalties. This paper examines incidents in which confidential information - for a firm's customers or employees - is stolen from or lost by publicly traded companies. Firms that experience such breaches suffer statistically significant losses in the market value of their equity. On the whole, the data indicate that these losses are of similar magnitudes to the direct costs. Thus, direct costs, and not reputational penalties, are the primary deterrents to information security breaches. Contrary to many published assertions, on average, firms that lose customer information do not suffer reputational penalties. However, when firms lose employee information, this paper finds significant reputational penalties.

Keywords: Information security, data security, breaches, reputational penalties

JEL Classification: K20, K42, L14, L15, L50

Suggested Citation

Tanimura, Joseph K. and Wehrly, Eric W., The Market Value and Reputational Effects from Lost Confidential Information (May 1, 2009). International Journal of Financial Management (October 2015) Vol. 5, Issue 4: 18-35., Available at SSRN: https://ssrn.com/abstract=1083891 or http://dx.doi.org/10.2139/ssrn.1083891

Joseph K. Tanimura (Contact Author)

Berkeley Research Group, LLC ( email )

2029 Century Park East, Suite 1250
Los Angeles, CA 90067
United States

Eric W. Wehrly

Western Washington University ( email )

516 High Street
Bellingham, WA 98225
United States
3606504820 (Phone)

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